Corporate governance

Idemitsu Kosan established Vision for 2030" Your Reliable Partner for a Brighter Future" in the previous Medium-term Management Plan (FY2020 to FY2022), and in the Medium-term Management Plan (FY2023 to FY2025) announced in November 2022, we established Vision for 2050" Shaping Change", taking a longer time horizon to realize a carbon neutral and recycling-oriented society in 2050, the future of energy and our ideal state.
By 2050, the global transition to carbon neutrality will accelerate, increasing the likelihood of major changes in energy systems and social structures. In this process, discontinuous technological innovation and the introduction of new technologies into society will be critical. In response to these challenges, we will promote provide for society and fulfill our "responsibility to support people's lives" and "Responsibility to protect the global environment now and in the future" based on the knowledge we have accumulated through stable energy supply and the trust we have built with local communities.
We will continue to emphasize building good relationships with our stakeholders, including customers, shareholders, business partners, local communities, and employees, by increasing management transparency and pursuing sound and sustainable growth.
Aiming to be "a company that is widely expected and trusted by society," we will comply with the Corporate Governance Code, which aims to promote sustainable corporate growth and enhance medium- to long-term corporate value through dialogue with shareholders. We will also aim for transparent and fair management by frankly discussing the actual status of our management and the environment surrounding our management with our diverse independent outside directors and independent outside Audit & Supervisory Board Member directors, and sincerely incorporating their multifaceted opinions.

At our company, the Board of Directors oversees important decision-making, such as business strategies and business plans, and business execution, in accordance with laws, regulations, the Articles of Incorporation, and rules. The Articles of Incorporation stipulate that the chairman of the Board of Directors will be decided by the Board of Directors and that a director other than the President may be selected as chairman, separating the roles of chairman and president to enhance the objectivity of the Board of Directors. From fiscal 2021, an outside director has served as chairman of the Board of Directors. In addition, to ensure swift decision-making, authority regarding business execution has been delegated to the President, Directors (concurrently Executive Officers), Executive Officers, and Manager.
In addition, the Company Audit & Supervisory Board Member and a board Audit & Supervisory Board Member, who are independent from the board of directors, who audit the execution of duties.

●Corporate governance system diagram

●Overview of the Board of Directors

●Summary of Audit & Supervisory Board Member

●Corporate governance system transition

①Nomination/Remuneration Advisory Committee
In order to increase the transparency and objectivity of functions related to nomination and compensation, we have established the Nomination and Compensation Advisory Committee, which is comprised of independent outside directors, as an advisory body to the Board of Directors. In response to inquiries from the Board of Directors, this committee makes recommendations regarding proposals for the general meeting of shareholders regarding the election and dismissal of directors and Audit & Supervisory Board Member, the appointment and dismissal of executive officers and their positions, and remuneration of directors and revisions to the compensation system. Masu. In fiscal 2022, the event was held a total of seven times.

●Composition and attendance status of the Nomination and Remuneration Advisory Committee (FY2022)

●Main deliberations and report contents (FY2022)

●Composition of the Nomination and Remuneration Advisory Committee (FY2023)

② Safety and Security Advisory Committee, ③ Advisory Board
In order to maintain management transparency and soundness, we have established a Safety and Security Advisory Committee and an Advisory Board, whose members are outside experts, as advisory bodies to the Board of Directors or the President. Both committees listen to candid opinions from a third-party perspective and reflect them in management improvements.
The Safety and Security Advisory Committee serves as an advisory body to the Board of Directors and reports on issues such as strengthening security in order to prevent large-scale disasters at Refineries/Complexes etc. Ensuring safety and security and stable supply are becoming increasingly important in the face of increasingly severe natural disasters. Therefore, we select themes and issues based on the latest knowledge and information, and a working group established within the Safety and Environment Headquarters takes recommendations from experts and takes countermeasures.
The Advisory Board serves as an advisory body to the president and is comprised of outside experts, including outside directors, and provides an opportunity for outside directors to make recommendations regarding management issues.

④Personnel Committee
As an advisory body to the president, the committee was established to place the right people in the right jobs, such as executive officers, to achieve fair and impartial evaluations, and to strengthen the transparency of the decision-making process. The committee is comprised of the President and Representative Director, the Vice President, the officer in charge of human resources, and the officers designated by the President and Representative Director, and discusses and reports on matters such as the appointment, dismissal, assignment, and evaluation of executive officers, as well as the selection of members of the management committee.

⑤DE&I Promotion Committee
As an advisory body to the president, the committee was established to create an environment in which diverse employees can work energetically and thrive, and to co-create new value. The committee is comprised of directors, officers in charge of human resources, and a variety of executives with different attributes such as gender and job type, and outside directors participate as advisors. We identify issues related to DE&I promotion, make recommendations to management, regularly report to the Board of Directors, and plan and promote company-wide initiatives.

⑥ Management Committee, ⑦ Risk Management Committee
We have established the Management Committee and Risk Management Committee as forums for discussion and consideration of management strategies and management issues for the entire Group and each executive department. Both committees are chaired by the president, and are composed of members who emphasize diversity in their specialized fields and areas of responsibility.The committees are structured to hold comprehensive and effective discussions on cross-divisional issues and risks. .
The "Management Committee" is a deliberative body that plans and considers strategies related to group management and makes important business execution decisions smoothly and appropriately. Additionally, the Risk Management Committee determines and monitors risk management policies related to group management.
Below both committees, committees for each specialized area have been established to discuss issues related to business execution and risk management from a more practical and specialized perspective.

●List of each committee

In FY2022, we announced Medium-term Management Plan covering FY2023 to FY2025. In formulating this plan, the Board of Directors held intensive discussions from the initial stage of plan review to determine the direction of the plan, including the establishment of important themes. Furthermore, we utilized outside officer meetings and the advisory board to deepen discussions at the Board of Directors while collaborating with the management committee and other parties, leading to the formulation of Medium-term Management Plan.

List of main deliberations at the Board of Directors (FY2022)

A survey targeting all directors and Audit & Supervisory Board Member was conducted in January 2023. Based on these results, we evaluated our efforts in fiscal 2022 to address the issues identified in the previous year, and after discussions three times at the Board of Directors, we identified future issues and confirmed the details of our initiatives.
The questionnaire was conducted not only from the perspective of confirming compliance with the Corporate Governance Code, but also from the perspective of aiming for qualitative satisfaction, and the design of question items and analysis of responses were conducted with the advice of external specialized organizations. Masu.

Our management monitoring system includes supervision by the Board of Directors, audits by Audit & Supervisory Board Member, and accounting audits, as well as internal audits by the Internal Audit Department based on the "Internal Audit Regulations" and internal control evaluations based on the "Internal Control Evaluation Regulations for Financial Reporting."
The Internal Audit Office, which reports directly to the President, regularly audits executive departments from an independent standpoint to check the effectiveness of the self-management that each executive department implements based on company regulations, as well as the progress of risk management and internal control. The results of the audits are reported to the President, Audit & Supervisory Board Member, Executive Officer in Charge, and the heads of the relevant executive departments. Executive departments that receive recommendations for improvement during audits prepare improvement implementation plans, submit them to Manager, and make improvements. The Internal Audit Office also conducts follow-up audits as necessary. Annual internal audit reviews and next year's plans are regularly reported to full-time directors and executive department heads at the "Management Information Liaison Meeting," and to outside directors and Audit & Supervisory Board Member at the "External Officer Meeting."

Audit & Supervisory Board Member (4 people) attend meetings of the Board of Directors, audit business reports, financial statements, and consolidated financial statements submitted to the general meeting of shareholders, and audit the status of business execution by directors and others on a daily basis. Full-time Audit & Supervisory Board Member attend important internal meetings such as the management committee and meet with department managers, overseas store managers, and subsidiary presidents, while external corporate Audit & Supervisory Board Member work to improve audits by conducting on-site inspections of major departments. Masu. As a general rule, meetings are held with the representative director once a quarter to discuss issues and exchange opinions.

Nomination of director candidates
In order to fulfill the roles and responsibilities of the Board of Directors, we need a certain number of directors who are familiar with the Company's business and issues.In order to ensure the independence and objectivity of the Board of Directors, we require diversity in the knowledge, experience, and abilities of the directors. We believe that it is important to ensure that Based on the above idea, we make selections that take into account the overall balance by utilizing human resource standards, skill/career matrices, etc.
The President thoroughly evaluates each candidate's abilities, knowledge, and performance, and then submits a draft proposal to the Nomination and Remuneration Advisory Committee, and the Board of Directors makes decisions based on the recommendations of the Nomination and Remuneration Advisory Committee.
The committee also deliberates on the dismissal of directors as necessary and reports the results to the Board of Directors.

Nomination of Audit & Supervisory Board Member candidates
Candidates will be selected from those who have appropriate experience and ability, as well as the necessary knowledge of finance, accounting, and legal matters. In addition, full-time corporate Audit & Supervisory Board Member candidates will be selected from individuals who are familiar with the Company's business and issues and who can accurately, fairly, and efficiently carry out audits and supervision of the Company. We make selections that take into account overall balance by utilizing human resource standards, skill/career matrices, etc.
The president will submit a draft proposal that fully evaluates the abilities, knowledge, and performance of each candidate to the Nomination and Remuneration Advisory Committee, and the Board of Directors will take into account the Nomination and Remuneration Advisory Committee's report and, with the consent of the Board of Audit & Supervisory Board Member, It has been decided.

Formulation of succession plan
The Nomination and Remuneration Advisory Committee deliberates on the selection and development of next-generation officer candidates based on long-term plans and reports to the Board of Directors. We are currently working on selecting and training candidates, including a succession plan for the president.

Independence standards for outside officers
In order for the Board of Directors to exercise its supervisory function and Audit & Supervisory Board Member to exercise its auditing and supervisory functions, persons who meet the "Independence Standards for Outside Directors and Officers" will provide useful advice to the Company's management, taking into account their diverse knowledge and backgrounds. We have appointed outside officers with the necessary knowledge and experience. Our basic policy is that at least one-third of the board members be independent outside directors, and that at least half of the company Audit & Supervisory Board Member are independent outside corporate Audit & Supervisory Board Member.

Skill/career matrix
While fulfilling our social mission of providing a stable supply of energy, we hope to contribute to the realization of carbon neutrality society by 2050, seize this as a business opportunity, and evolve into a corporate entity that continues to grow sustainably. . To this end, it is extremely important that directors and Audit & Supervisory Board Member with diverse knowledge and experience engage in lively discussions at board meetings to improve the quality of discussions regarding overall management strategy, including human resources strategy.
Since creating and disclosing the skill matrix for directors in 2020, we have continued to review it as appropriate in light of the management issues we face.
In 2023, based on Medium-term Management Plan (FY2023-2025), we reviewed the fields expected of directors and Audit & Supervisory Board Member and selected the fields listed in the table below. With diversity in mind, we appoint officers with knowledge and experience in these fields.
To address issues in areas where the board members are insufficient (fields that require a high level of expertise, such as economic security), we invite outside experts to serve on the advisory board and in executive training.

●Skills/Career Matrix: Director

●Skills/Career Matrix: Audit & Supervisory Board Member

training
Our company provides training for directors and corporate Audit & Supervisory Board Member to acquire knowledge about the roles, responsibilities, and compliance expected of directors and corporate Audit & Supervisory Board Member of listed companies.
In addition, we will provide explanations about our business, finances, organization, etc. to those newly appointed as independent outside directors and independent outside corporate Audit & Supervisory Board Member, and strive to create an environment in which they can fulfill their roles and responsibilities. Masu. Furthermore, the Company encourages self-improvement by each Director and Audit & Audit & Supervisory Board Member, provides and mediates training opportunities tailored to each individual Director/ Audit & Audit & Supervisory Board Member, and provides extensive support for necessary expenses.

Basic policy on executive compensation
Regarding the remuneration of our directors and others (directors and senior executive officers and above), we aim to ensure that the compensation will lead to improvements in company performance and corporate value over the medium to long term, in order to realize the Group's management vision. Our basic policy is to create a remuneration system and decision-making process that is transparent, reasonable, and fair, so that we can fulfill our accountability to stakeholders such as the environment, shareholders, business partners, and employees. Based on this basic policy, the Company's executive compensation system is as follows.

Compensation level
From the perspective of appointing and securing excellent human resources who will contribute to the realization of the medium- to long-term management vision, and providing appropriate incentives, we review the system as appropriate and appropriate, taking into account changes in the business environment and external survey data.

Compensation determination process
The Company has established the Nomination and Remuneration Advisory Committee, which is comprised of independent outside directors, as an advisory body to the Board of Directors. Based on the committee's report, the Board of Directors determines the amount of remuneration for directors and the method for calculating it. In addition, individual remuneration for corporate auditors is determined through consultation among corporate auditors. Please note that executive remuneration, etc., will be paid within the upper limits of remuneration, etc., resolved at the general meeting of shareholders.

Compensation structure
The remuneration system for the Company's directors (excluding part-time directors and outside directors) and senior executive officers and above emphasizes linkage with performance over short-term and medium- to long-term time frames, and aims to improve corporate value over the medium to long term. In order to appropriately evaluate efforts, compensation consists of ① fixed compensation, ② performance-linked bonuses, and ③ performance-linked stock compensation. The remuneration of part-time directors and outside directors consists only of fixed remuneration from the perspective of ensuring an appropriate supervisory function of determining the appropriateness of business execution from an objective standpoint.

●Image of compensation composition ratio for internal directors/senior and above executive officers

●Remuneration system and performance-based remuneration system

Clawback system

In the event that a director, etc. commits serious misconduct or violation, the director, etc. will be required to forfeit the beneficial rights to the shares scheduled to be delivered under performance-linked stock compensation (MARS), or demand the return of the allocated shares and other equivalent money (MARSU). This stipulates that a clawback) is possible.

Total amount of remuneration etc. by officer category

The total amount of remuneration for directors in fiscal 2022, the total amount by type of remuneration, and the number of eligible officers are as follows.

Total amount of remuneration, etc. for those whose total remuneration, etc. is 100 million yen or more

Holdings policy for cross-shareholding listed stocks
The Company holds cross-shareholdings necessary to maintain and expand transactions over the medium to long term, and once a year verifies the suitability of these stockholdings and works to reduce them. Specifically, the company will carefully examine both quantitative evaluations to determine whether the benefits and risks associated with stock ownership are commensurate with the cost of capital, and qualitative evaluations such as improvements in business stability, and the Board of Directors will deliberate and determine whether or not the sale is appropriate. Masu. Regarding stocks that we have decided to sell, we proceed with the sale after obtaining their understanding through thorough dialogue with business partners and taking into consideration the impact on stock prices. As of the end of fiscal 2022, the number of shares held is 12.

Standards for exercising voting rights regarding cross-held listed stocks
The Company's policy for exercising voting rights related to cross-held listed stocks is based on whether the corporate value of both the Company and the cross-shareholding company will be sustainably improved. We will consider the management strategy and business performance of cross-holdings to determine whether sustainable corporate value can be improved, and if necessary, we will exercise our voting rights after receiving an explanation of the proposal. If there is a risk that a cross-shareholding entity's agenda may conflict with the Company's interests, the Company will exercise its voting rights as necessary based on the opinions of independent outside directors and outside experts.