Summary of the Q&A Session for the December 2021 ESG Meetingfor Institutional Investors and Analysts
Date/Time:
Presenters:

Tuesday, December 14, 2021 (15:30-16:45)
Keiichi Iwata, Representative Director & President
Hiroshi Ueda, Director & Executive Vice President
Yoshizumi Sasaki, Managing Executive Officer

Q. I think your efforts to shift fuel energy sources for Sumitomo Chemical on a parent
company basis as well as for your affiliates will increase your costs, but to the extent
that results in higher costs, will you be able to pass on those costs in the form of higher
pricing? More generally, I would like to ask your views on how your net zero efforts
for 2050 will change your overall earnings.
A. Currently we are converting our Ehime Works and Chiba Works to different fuel sources.
For example, in the case of the Ehime Works, we made this decision at a time when thecriticism against coal-fired plants was not as strong as it is now. Thinking ahead, wedecided to switch to LNG based on the thought that we had to move away from coal, butusing LNG would increase our costs. If we simply accepted higher costs, our plants would
lose their overall competitiveness, so we needed to think and come up with new ideas. LNG
costs more than coal, but if we take into account such issues as the electricity generated
from LNG and then from steam, or that, by building a large LNG terminal where oceangoing vessels can land in the Toyo area of Shikoku, which did not have one at the time, wecan collaborate with other companies, we can reduce the costs. These new ideas enabled us
to limit the cost increases. The same was true in the case of the Chiba Works. We were notusing IRR to measure investment efficiency, but we are not looking to make investments inCO2 reductions that would increase our utility costs, such as from steam and electricity.
Still, as to whether we can continue to use this approach into the future, there may be a limit
to the benefits of new ideas, and we may not be able to avoid cost increases. Even if wecannot generate benefits, we need to think about what we need to do to avoid a reduction in
our competitiveness, and I want us to continue to focus our efforts on this issue. Particularlyin the beginning stages, whether society will be willing to accept higher costs will be an
important point that determines the progress toward carbon neutrality.

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Q. You are saying that, while costs will increase over the long term, you will make it sothat your competitiveness does not decline, but what are your thoughts about thepossibility that the investments associated with your current initiatives will result instranded assets? You described LNG as a transition, but, for example, are you
thinking that, after it is fully depreciated in 20 years, there will be a next stage ofinvestments, or that it will be OK because the carbon footprint will be able to bemeasured, and that you, along with a wide network of supporters, will be able to makean appeal to its value? I would like to ask you about your thoughts on the effectivenessof your current investments from a slightly longer perspective.
A. There are 30 years until 2050, so because any plant would be fully depreciated before 30years are up, we were not viewing these as becoming stranded assets. Still, the points you
are making are very important, and I would like us to consider the issue of how they should
factor into investment decisions or evaluations of economic feasibility.
Q. In the past year you have implemented several fairly specific initiatives, leaving mewith the impression that you have made great advancements. In terms of your policies
for carbon neutrality, regarding what you describe as “obligations,” you havepresented quantitative data on the extent to which you can reduce carbon emissions.
On the other hand, for the “contributions,” you have not presented quantitative data.
For example, I think it would be difficult to calculate the contribution in the reductionof greenhouse gas emissions of your separators, but if you have internal estimates atthe present time, please let us know.
A. That is exactly the point under discussion, and there are some who talk about net zero interms of subtracting the contributions of their products and technologies from the volume of
their emissions. In the case of Sumitomo Chemical, however, getting our own emissions
through our own efforts to zero is what we view as our obligation. If we specified ourcontributions quantitatively in terms of number of tons, it would be mistakenly assumed that
we would be subtracting our contributions from our obligations, so we intentionally are notpresenting figures on the effect of our contributions. Within our contributions, there are twotypes: direct reductions in greenhouse gas emissions from licensing technology, and indirect
reductions in greenhouse gas emissions from the use of our products. In the example you
raised of our separators, they are used as a component in the storage batteries of electricvehicles. In the difference in greenhouse gas emissions between electric vehicles andgasoline-powered cars, however, even if our separators made a contribution of somepercentage, it would be an indirect reduction in greenhouse gas emissions, so it needs to bethought of in a different category. Because it would be difficult to attribute that percentageof indirect contributions to Sumitomo Chemical, it is still a point of discussion. I would likeus to show a significant volume of reductions just from our direct technology contributions.

2Q. On slide 13, you mention plant electrification among the efforts you will be taking up
to 2050, but are paying close attention to the initiatives of companies in Europe andthe US toward e-furnaces and e-crackers? It seems that chemical manufacturers
outside of Japan have a strong willingness to invest in these technologies, but we would
like to hear your views. In the case of Japan, there are limits to using renewableenergy sources, and there are also difficulties with carbon capture and storage, so Iwould also like to hear your views on these issues.
A. For Japan’s petrochemical industry, what fuel to use for crackers is an extremely important
issue. We also considered this, but because Japan would be at a severe cost disadvantage interms of electricity costs, we understand that industry groups, such as the Japan
Petrochemical Industry Association, are considering using ammonia as a fuel. I think Japan
will take up the challenge of developing cracking technology with ammonia as the fuel.
Separately, there is technology for electric boilers. Electric boilers are widely usedthroughout the world, but the high cost of electricity has resulted in them being hardly used
at all in Japan. In collaboration with a boiler equipment manufacturer, we are currently
studying the potential for electric boilers.
Q. Does that mean that, when you mention plant electrification in slide 13, you especiallyhave electric boilers in mind?
A. It refers to a variety of things, including the use of electricity in reactions.
Q. Regarding the graph showing declines in greenhouse gas emissions, according to yourexplanation, I think that much of the decline is in Japan, but are your affiliates outsideJapan also contributing to the reductions? In addition, you have changed your target
for reductions in 2030 from 30% to 50%, but is much of the contribution here inJapan, or will your affiliates also contribute?
A. The boundaries for the totals are the group companies subject to our control, and this is thestandard rule in accordance with SBT. In other words, PCS and Petro Rabigh are notincluded, but TPC and Dongwoo Fine-Chem are included. In terms of the reductions, rather
than making special mention of which locations made large contributions, the reality is thatmany group companies made contributions, and it is the cumulative effort over time.
Regarding the 50% reduction target, while we aim to achieve it, we have not disclosed thespecifics. As part of the contributions of group companies, we can point out the reduction inemissions from fluorine-containing gases in the processes used by Dongwoo Fine-Chem.
Compared to CO2, the contribution to global warming from fluorine-containing gases isseveral hundred times greater. Up until now, while our emissions of fluorine-containing
gases was low, we had not paid sufficient attention to them in terms of the issue ofgreenhouse gas emissions, but now we are already taking action. The cumulative effect ofsuch initiatives is what is making the difference in the increase in the reductions target from
30% to 50%.

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Q. So should we take this to mean that reductions in emissions with high global warming
coefficients are part of the count?
A. When considering reducing our greenhouse gas emissions, we have found substances withhigh global warming coefficients at group companies outside Japan. In this way, taking
these new measures will become one factor in reducing emissions from the 30% target tothe 50% target.

Q. With regard to the simultaneous listing of both parent companies and subsidiaries,
you have said that you think your current setup is good, from the perspective of thebenefits of having listed subsidiaries versus the financial issues, but in the event thatyour financial situation becomes healthy, will your feelings on this subject change? I
think that the market caps for both Koei Chemical and Taoka Chemical are relatively
small, but what are your thoughts on this subject? In addition, what sorts of issues arethe focus of your discussions on this topic, either with investors or with executives
inside and outside the company?
A. With regard to Sumitomo Dainippon Pharma, the simultaneous listing of both parent
company and subsidiary is becoming a financial problem. Even if those financial
restrictions were loosened, however, that does not automatically mean that we would
discontinue the simultaneous listing, or make it a wholly-owned subsidiary. Rather, I think
it would be necessary to once again confirm which option would raise corporate value forboth companies. Our current way of thinking is that, even if we assume that making it into awholly-owned subsidiary would be best for both companies, we cannot do that because of
our current financial issues, so in that sense, I think that actually we would end up having totake another step first.
As for Koei Chemical and Taoka Chemical, we feel that the current state is best for bothcompanies. We believe that simultaneous listing alongside the parent company will increase
the market value of both companies going forward, rather than being driven by any financialproblems.
With regard to our cooperative conversations with investors, we first held discussions thatincluded both Outside Directors and Outside Corporate Auditors. We conveyed the views ofmanagement, and heard their frank views, and our shared viewpoint is that simultaneous
listing of parent companies and subsidiaries is a case-by-case issue. Our sharedunderstanding is that simultaneous listing is not always bad, or always good, but rather
something where the merits and flaws should be judged separately for each individual case,and that it is one possible option when rational reasons are available.

4Q. With regard to the announcement by Mitsubishi Chemical Holdings that it isreorganizing its basic chemical businesses in Japan, I would like to ask for thePresident’s thoughts on what sort of impact this will have on your company, though I
understand the impact may be small, because you have already withdrawn from thecracker business.
A. Looking at the Japanese domestic petrochemical industry from the three criteria of growthpotential, cost competitiveness, and CO2 emissions burden, it is difficult to find reasons tomake the petrochemical industry in Japan into a core business going forward, or to put
effort into this area. There are, however, also a number of reasons to not leave thepetrochemical industry entirely. For example, there are issues of economic security, and adomestic petrochemical industry might become a source of competitive strength for othermanufacturing industries, and furthermore, they might be converted into chemical recycling
facilities in the future, so you cannot just get rid of the entire petrochemical industry. In
these circumstances, I think integration or cooperative reinforcement might become thenatural conclusion. What sorts of integrations or collaborations might be appropriate would
need to be discussed on a case-by-case basis, looking at the state of the product or the
petrochemical complex, and the state of the market. What needs to be taken into account iswhether there is a possibility of talking about this at the level of entire complexes, orwhether separate markets exist for them as products. I think the general view is that it thenbecomes a question of how you think about those combinations. The question of how wewill position things during our reorganization is something we will need to thoroughly
consider going forward. Because I personally do not have a view that things ought to be acertain way at the current stage, and neither does our Petrochemicals & Plastics Sector, thisis a topic we will need to consider going forward.
Q. On the technology front, I think the petrochemical industry in Japan has been used tocapturing harmful emissions, such as SOx or NOx, for example, and rendering themharmless. Now, however, CO2, which had previously been considered to be essentiallyharmless, is suddenly being called harmful. Because it is extremely difficult to recoverCO2 once it has been emitted, I think it would be most efficient to capture 100% ofCO2 as it is being produced, and render it harmless, but is that something you could do
as a manufacturer? If you cannot, is that because of the costs, or some other reason?
A. The CO2 emitted during manufacturing processes, while it is not the majority, is possible tocapture because it comes out of chemical reaction formulae. The CO2 in combustion
exhaust, however, is difficult to treat as a foreign element, technically speaking. There arethings like SOx and NOx, for example, and particulate matter, that mean that, if they are notproperly handled, we will not be able to capture just the CO2 when it is emitted. The CO2
separation membranes that we are currently researching and developing are efficientbecause they can separate out and capture CO2 without an energy cost, but if even small
amounts of SOx or NOx are present (even below levels set in environmental standards), theperformance of the membrane drops, which is a problem. As for other methods, CO2collection using amine absorption does not have this problem, but because separating thecollected CO2 from the amines requires a great deal of energy, we feel that the separationand collection process as a whole is not efficient. At the moment, however, only amineabsorption is possible at a practical, technical level.
5Q. There have been TV news reports covering trials that separate the CO2 from amines atlower temperatures, so I think effort is being put into that area, but should I take yourstatement to mean that, because putting CO2 countermeasures into place in one area
can mean that CO2 emissions are generated in other areas, therefore you are notmaking much progress?
A. With regard to amine absorption, your understanding is correct. As for membrane
technology and other technologies, they are still at a rather low level of technical maturity.
Q. If technological development proceeds smoothly going forward, will these technologies
be achievable at costs that could allow for commercial deployment?
A. In terms of performance, we can do it, but I think it depends on how much pre-processing of
foreign impurities costs.
（END）
Cautionary Statement
Statements made in this document with respect to Sumitomo Chemical’s current plans,estimates, strategies and beliefs that are not historical facts are forward-looking statements
about the future performance of Sumitomo Chemical. These statements are based on
management’s assumptions and beliefs in light of the information currently available to it, andinvolve risks and uncertainties.
The important factors that could cause actual results to differ materially from those discussed
in the forward-looking statements include, but are not limited to, general economic conditionsin Sumitomo Chemical’s markets; demand for, and competitive pricing pressure on, Sumitomo
Chemical’s products in the marketplace; Sumitomo Chemical’s ability to continue to win
acceptance for its products in these highly competitive markets; and movements of currency
exchange rates.

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