Solving Social Issues through Manufacturing
To Promote Responsible Procurement
Sakai Chemical Industry aims to promote responsible procurement in line with the Basic Procurement Policy and believes that the key to suchprocurement is to obtain its business partners’ good understanding of that and related policies. Therefore, we are striving to build good
relationships based on mutual understanding with our business partners.

Basic Procurement Policy
1. Compliance with Laws and Regulations
We will comply with all relevant laws and regulations in our procurement processes. In addition, we will renounce any acts or ideasthat are contrary to our corporate ethics.
2. Consideration for the Environment, Quality and Safety• We will give serious consideration to the environment and conservation in accordance with our Basic Environmental Policy.
• We will strive to balance economic efficiency with environmental considerations in our procurement.
• We will contribute to society by prioritizing product safety and achieving stable, high-quality supply at low cost, in accordancewith our Basic Quality Policy.
• With our corporate social responsibility always in mind, we will carry out our duties with the aim of creating a sustainable society
while giving consideration to the issues of environmental pollution, resource protection, safety, and human rights.
3. Fairness and Impartiality• Our Purchasing Department will carry out its duties with its doors open wide to all suppliers.
• In the selection of suppliers, we will strive to make fair and impartial judgments and act with integrity.
• We will also deepen mutual understanding and build relationships of trust with our suppliers.

Relationships with Business Partners

Promoting the procurement of environmentally friendly materials and fuels
To contribute to the realization of a carbon neutral society by 2050,
Sakai Chemical Industry started procuring carbon neutral LNG (CNL)
through Tokyo Gas Co., Ltd. in April 2020. The Company also
participated in the establishment of the Carbon Neutral LNG Buyers
Alliance together with other 14 companies, including Tokyo Gas, inMarch 2021. To realize a sustainable society, we are seriously
committed to ensuring more widespread use of CNL and improving thevalue of its use.
Carbon neutral LNG (CNL) is natural gas from which the entirety ofCO2 emissions, ranging from those from gas exploitation to those fromgas combustion, are deemed to be completely offset by a CO2emissions reduction achieved by forestation and other projects.
Our initiative to introduce CNL was launched at the Matsubara
Factory, which manufactures cosmetic materials at the Onahama
Manufacturing Site. Since April 2023, we have scaled out this initiative
to the Otsurugi Factory, our main electronic material factory at theOnahama Manufacturing Site. We are thus making steady steps toward
CO2 emissions reduction.

Palm Oil (RSPO) for a Cosmetic Material Product
Importance of our acquisition of
RSPO certification

In addition, we have shared with our business partners a list of the following nine requests in order to seek their understanding and cooperation.
• Do not engage in unfair discrimination on the basis of race, gender, ethnicity, religion, nationality, or age or for any other reason.
• Do not engage in any form of forced labor or child labor. Do not allow unfairly low-wage labor or be complicit in human rights violations.
• Work to reduce environmental impacts and protect the environment, including ecosystems.
• Have no relationship with anti-social forces or organizations.
• Build good partnerships and conduct sound and fair transactions in order to achieve mutually prosperous relationships.
• For local communities, prioritize environmental preservation and safety in all aspects of operations.
• Ensure appropriate management of customers’ important confidential information.
• Ensure the quality and safety of products and services and pursue customer satisfaction.
• Promote and manage responsible procurement in compliance with conflict mineral regulations and other applicable rules.

Supplier auditsInitiatives for responsible mineral sourcing

To build and cement relationships of trust with our suppliers andenhance the quality and safety of raw and subsidiary materials, weaudit our suppliers in cooperation with them. In FY2022, 13 of oursuppliers underwent on-site audits, a significant increase in thenumber from FY2021 (three subject to on-site audits and three todocument-based audits) due to the reduced impact of COVID-19
activity restrictions. The audit process mainly comprises checks on
the quality control system and responses to various regulations
based on a Supplier Audit Checklist. We also request our suppliers
to fully understand our requirements for the quality of raw materials

There has been serious global concern about conflict minerals,
which are likely to be a source of funds for armed groups committing
inhumane acts. To prevent conflict minerals from being included in
the materials we procure, we send the Supplier Audit Checklist, theConflict Minerals Reporting Template (CMRT),* or the Extended
Minerals Reporting Template (EMRT)* to our suppliers and request
them to answer the questions and guarantee that their products areconflict-free.
Relevant substances procured by Sakai Chemical Industry:Tungsten, tin, tantalum, gold, cobalt, and mica
* The CMRT and the EMRT are provided by the Responsible Minerals Initiative (RMI).

On-site audit

13 suppliers

Document-based audit

46 suppliers

26 2023 Environmental & Social Report

We recognize that, in recent years, the meaning of “responsiblemineral sourcing” has been broadening to include action against not
only risks related to conflict minerals and armed groups but also risks
related to child labor and environmental destruction. From now on,
we will work to formulate a Responsible Mineral Sourcing Policy,
share it with our business partners, and seek their understanding.

Nowadays, public attention has focused on the reduction of not only
Scope 1 and Scope 2 emissions directly from companies’ businessactivities but also CO2 emissions throughout the entire supply chain.
The initiative to introduce CNL also contributes to reducing Scope 3emissions on the users’ side.
The cosmetic materials business and the electronic materials
business are both growth businesses of Sakai Chemical Industry. We
believe that not only the competitiveness of our products themselves
but also the environmental procurement of energy, which is directly
connected to the manufacturing of those products, will become evenmore important in the future. In considerationof economic aspects, we will start byincreasing our CNL procurement andsourcing other raw materials and fuels that
contribute to carbon neutrality in order toachieve our CO2 emissions reduction target
for 2030, one of our in-house KPI targets.

❶ Environmental conservation
Preventing excessive deforestation and reducing theresulting negative impact on biodiversity, thereby
achieving sustainable palm oil production

In 2022, Sakai Chemical Industry obtained certification from theRoundtable on Sustainable Palm Oil (RSPO) for ultrafine titanium
dioxide, a cosmetic material product that uses additives derived
from palm oil. Our support for RSPO and acquisition of RSPO
certification for relevant products will enable us to promoteresponsible procurement, which is one of our issues of materiality.
Rather than simply procuring raw materials and using them tomanufacture and ship our products, we must carefully monitor theproduction processes of those raw materials in order to be aresponsible manufacturer.
Specifically, the thorough traceability of palm oil—where it isproduced, how it reaches us, which of our products uses it, andwhich users we ship the product to—will not only enable us to beresponsible for palm oil sourcing but also bring the users peace ofmind and help them to be responsible for materials sourcing.
In this way, we will leverage RSPO certification to continue topromote responsible procurement that is friendly to both theenvironment and human rights with the aim of ensuring transparency
throughout our supply chain and helping solve social issues.

❷ Social responsibility
Providing indirect support for manufacturing, such as
respect for the human rights of local workers involved inpalm oil production and the improvement of their working
environments❸ Sense of security for users and establishment of asustainable supply chain
Realizing the traceability of raw materials used based on❶ and ❷, thereby not only ensuring sustainability but also
providing users with a peace of mind that comes from ouruse of highly transparent raw materials in the cosmeticmaterials business, which we position as our growthbusiness, as well as building a sustainable supply chain
based on their choice of our products2023 Environmental & Social Report27

Financial Information Fiscal year 2022 (from April 1, 2022 to March 31, 2023)

Together with Customers and Business Partners

Utilization of the ESG information sharing platforms
Sakai Chemical Industry has registered with Sedex and EcoVadis,
external evaluation platforms, to seek annual external evaluation ofenvironmental initiatives, labor practices, respect for human rights,
corporate ethics, and procurement, all of which are rapidly becoming
more important in our business activities.
As a result of the latest EcoVadis evaluation, the Companyachieved a “Silver” sustainability rating for its Sakai Manufacturing Site
and a “Gold” sustainability rating for its Onahama Manufacturing Site.
The Company has been using this evaluation service since 2020and has scored as shown in the table below over the past three years.
Although the rating for the Sakai Manufacturing Site has changed
from “Gold” to “Silver,” this does not mean a decline in the quality of
its ESG initiatives, as shown by the trend of the specific scores.
Recently, an increasing number of users of this platform haverequested that our scores be shared with them. This fact has reminded

us that we are more strictly required to pay full consideration to thesustainability of the global environment and society as a whole invarious aspects of our business operations, in parallel with conducting
appropriate business activities in our main businesses. Therefore, as amanufacturer, we must not only provide products but also respond to
all risks and opportunities associated with manufacturing. If thepurpose of our efforts to improve our internal initiatives were raising ourratings in external evaluation, it would mean that we are mistaking themeans for the end. We hope to utilize such objective evaluation toenhance our daily operations.

FY2020Period of status

FY2021

Labor andAssessment Overall score Environment human rights

Gold

67

7070

Ethics

6050

Gold

71

80

70

Ethics60

Ordinary profit

Profit attributable to owners of parent

83.8 billion yen

4.4 billion yen

4.8 billion yen(increased by 4.6%
year on year)(decreased by 41.2%
year on year)(decreased by 45.1%
year on year)

2.3 billion yen

2.6 billion yen
ROE:

Depreciation:

2.9％

Net sales
10050

FY2021

FY2022

Gold

68

70

70

60

60

Gold

72

80

70

60

60

FY2022

FY2023

Silver

68

70

70

60

60

Gold

72

80

70

60

60

89.5

87.1

84.9

80

860

6

4.9

40

4

4.4

20

2

2020.32021.32022.302023.3

Profit attributable to owners of parent

7.5

ROE

8.7

（％）

10.0

6.0

8.0

4.5

6.0

4.6
3.3

3.0
1.5

3.6

2.9

2.5

6.7

2.3

4.0
2.0

-2.0

-3.6
2019.32020.3-4.0
2021.32022.32023.3

Capital investment and depreciation

The future society we envision can be described as a “healthy andcomfortable society where abundant nature and convenienttechnology are in harmony.” We will work to solve problems in thefollowing three fields in order to “Solve Social Issues through
Manufacturing,” one of our issues of materiality we have identified
toward the fulfillment of our future vision.
1) Life science and healthcare (including the food and waterbusinesses)
2) Environment and energy3) Electronic materials and information communication networkWe have defined the Smart Material® initiative as making a positive
contribution to these three fields through products and services andpowder processing technology. Based on this definition, theSustainability Committee examines and assesses each product andtechnology in terms of its level of contribution and certifies those thatmeet the criteria as “Smart Material®.” The Smart Material®
assessment is conducted through comprehensive comparison withconventional products or technologies from two perspectives:contribution to the fulfillment of our future vision and contribution toour technology. Importance is placed not only on contribution to thepursuit of profitability but also on contribution to solutions toenvironmental and energy issues and the reduction of

28 2023 Environmental & Social Report

5.3

6.0

4.3

4.4

4.0
2.0

2019.32020.32021.32022.32023.30Total assets and equity ratio
Total assets

Equity ratio

15090（％）

100

120.0

121.6

123.0

64.3

64.4

61.6

123.9

63.6

128.0
80

62.9

60

60

40

30

20

100

2019.32020.32021.32022.32023.30

Shareholder return (dividend per share and dividend payout ratio)
Capital investment(Billion yen)

DepreciationDividend payout ratio （％）

Dividend per share(Yen)

100

9.5

51.8

8.4
880

60
48

6.8
5.9

64

3.1

3.6

4.2

60

4.4

4.3

0

36

23.8

26.5

40

24

17.2

2.62

The development ofSmart Materials® will lead
to Chemistry for a
Friendly Future ! Let s
create an Exciting
Company together!

4.0

5.1

0

-3.0

Cheetan, tell me what “Smart Materials ” are!

4.6

(Billion yen)120®

Simply put, “Smart Materials ” embody
Sakai Chemical’s development policy.

8.0

7.4

2019.3

10.0

9.4

83.8

80.1

-2.8manufacturing-involved energy consumption and waste. The
certification criteria will be revised as needed according to changes
in our management strategy and the external environment. In
FY2023, we will initiate preliminary screening of pre-launch R&D
products to discover candidates for Smart Materials®.
Through Smart Materials®, we hope to contribute to solutions toissues in the three fields, thereby realizing both Sakai Chemical’s
corporate growth and our future vision.

Operating profit margin （％）

Operating profit

10-1.5®

128.0 billion yen

51.8％(Billion yen)

0VoiceTotal assets:(decreased by 65.2%
year on year)

Operating profit and operating profit margin(Billion yen)(Billion yen)

Sustainable material
sourcing

4.4 billion yen

Dividend payout ratio:

Profit attributable to owners of parent and ROE

Onahama Manufacturing Site
Sustainable material
Labor andAssessment Overall score Environment human rights
sourcing

Operating profit

Capital investment:

0Sakai Manufacturing Site
Period ofevaluation work

Net sales

20

2019.32020.32021.32022.32023.301250

401570752019.32020.32021.32022.32023.30* The dividend per share for FY2018 includes 10 yen added to celebrate thecentenary of Sakai Chemical Industry’s founding.
* For FY2020, only an interim dividend per share of 15 yen was paid.

Fire accident at the Onahama Manufacturing Site
On March 30, 2023, we caused a fire at the titanium dioxide manufacturing factory of our Onahama Manufacturing Site (Iwaki City, Fukushima
Prefecture). We would like to sincerely apologize for the accident.
The fire broke out in a wet dust collector (mist Cottrell), which processes combustion exhaust gas, in the factory. However, the equipment wascompletely destroyed by fire, so the direct cause has not yet been determined. From the operating conditions at the time, we infer that the insideof the mist Cottrell had dried out, thereby producing sparks.
The accident occurred when we were implementing safety measures based on the lessons from the Yumoto Factory explosion two years ago.
We have renewed our determination to devote all-out efforts to implementing and enhancing our safety measures with a sense of tension.

2023 Environmental & Social Report29