ESG x Startup Report: Current State of ESG Efforts Among Japanese Startups and Learnings From Japanese/International Case Studies

0 Copyright © 2022 by MPower Partners. All rights reserved.
ESG x Startup Report September 2022 Supported by (in Japanese syllabary order) Current State of ESG Efforts Among Japanese Startups and Learnings From Japanese/International Case Studies

• Provide transparency on current state of ESG efforts among Japanese startups and key challenges faced • Synthesize key learnings from advanced case studies Objective • Survey implementation and analysis of 50 Japanese startups to understand current status of ESG efforts • Interviews with 10 domestic and international companies engaged in advanced ESG efforts • Literature research and BCG global insights/expertise Approach Survey responses and expert interviews: June–July 2022 Research period 1. Current state of ESG efforts — Japanese startups • Current ESG situation inside and outside Japan • Current state of ESG efforts among Japanese startups • Survey results and analysis 2. Learnings from ESG practitioners • Significance of ESG initiatives • 7 Principles for activating ESG efforts • Summary of recommended actions Report structure ESG x Startup Report Overview Report authors Supported by (in Japanese syllabary order)

As interest in ESG grows worldwide, it is becoming increasingly integrated among large Japanese companies. In contrast, Japanese startups are struggling to determine how best to approach ESG topics given the following reasons: • Because the correlation between ESG and business performance/impact is unclear, it is given low priority, resulting in limited allocation of resources. • Although companies believe they should get involved in ESG, because they find the whole concept so challenging, they’re unable to take that first step. However, a select number of successful startups are increasingly implementing ESG- related efforts as a means for sustainable growth. These companies are starting early and personalizing their ESG efforts according to what makes sense for them, regardless of their size. This report summarizes the following elements to help startups implement ESG successfully: Chapter 1 provides a quantitative understanding on the current state of ESG efforts among Japanese startups based on a survey of 50 startups in Japan. The section looks into actual initiatives implemented across ESG areas and bottlenecks, in addition to actual impact of ESG initiatives to business performance, among other topics. • The majority of companies that responded to the survey were middle-stage (Series B funding secured/planned) or later. Chapter 2 summarizes the significance of ESG initiatives and explores 7 Principles for activating ESG efforts based on expert interviews with 10 leading startups in Japan and overseas We trust this report will be helpful to a wide range of startups (from seed-/early-stage to pre-/post-listing) and enable sustainable growth. Introduction

Overall Environmental Social Governance Executive Summary (1/2) Current State of ESG Efforts Among Japanese Startups Note: 1. DEI = Diversity, Equity, and Inclusion • ESG efforts driven by “growing social momentum for ESG” and “requests from investors and employees” • 4 main objectives for engaging in ESG efforts are “branding,” “promoting the purchase and use of company services and products,” “loyalty and retention improvement,`” and “development of strategies” • Most startups that have engaged in ESG efforts feel there has been a real impact on their business. In particular, a large number of startups feel their efforts contributed to the “promotion of employee retention & recruitment” • The primary bottlenecks working against undertaking ESG are “lack of resources” and “lack of knowledge on ESG” • DEI1: Although the level of DEI efforts varies by company, at many startups, the proportion of women in management roles tends to be very low compared with the total share of women employees • Talent engagement: Most companies have implemented “support for remote work” and “childcare leave” • Except for environmentally focused/manufacturing startups, “efforts to measure and reduce GHG emissions” are currently limited • Limited representation of internal and external “women & foreign nationals on Board of Directors” • Significant difference in level of whistleblowing initiatives implementation by stage, with most later-stage companies having a whistleblowing process and half of them actually “utilizing the whistleblowing process" • Greater tendency for later-stage startups to engage in data security and privacy efforts compared with early-stage ones Early-stage: Series B or before Later-stage: Series C onwards

1 2 3 4 5 6 7 Customize and integrate ESG as part of the overall business strategy, ensuring it is adapted to fit the needs of the organization Link key organizational values with employee evaluations/hiring requirements to ensure those values are ingrained deeply in all employees Change and evolve governance structure in response to a company’s stage and market changes To recruit and retain talented personnel, create a diverse work environment where employees from all backgrounds can thrive Without compromising on speed, develop a mechanism to respond to risks that occur/increase as a company expands Identify company’s key challenges by developing a quantitative understanding of its situation and conducting benchmarking against other companies Underpinned by management commitment, execute on actions that can be undertaken in the short term even without vast resources/knowledge Direction setting Org development and growth Effective mgmt. & risk control 1 2 3 4 Strategy formulation Culture development Organization building (mgmt. structure) Organization building (HR dev. & retention) 5 6 7 Risk mgmt. Current issue visualization Bottleneck resolution Principles That Guide ESG Initiatives Executive Summary (2/2) 7 Principles for Activating ESG Efforts

Report Content Current State of ESG Efforts Among Japanese Startups • Current ESG situation inside and outside Japan • Current state of ESG efforts among Japanese startups • (Survey results and analysis) 1 2 Learnings From ESG Practitioners 5 • Significance of ESG initiatives • 7 Principles for activating ESG efforts • Summary of recommended actions Copyright © 2022 by MPower Partners. All rights reserved.

Report Content Current State of ESG Efforts Among Japanese Startups • Current ESG situation inside and outside Japan • Current state of ESG efforts among Japanese startups • (Survey results and analysis) 1 2 Learnings From ESG Practitioners 6 • Significance of ESG initiatives • 7 Principles for activating ESG efforts • Summary of recommended actions Copyright © 2022 by MPower Partners. All rights reserved.

ESG Current Situation Inside and Outside Japan 1 Although ESG engagement level varies by country and region, it continues to grow in importance (especially in Europe), driven by investor request (institutional investors, VCs, etc.) and consumer demand toward companies (including startups) ESG outside of Japan Japan has lagged behind Europe in terms of ESG engagement. However, recently, due to stricter regulations and rising interest in ESG, an increasing number of companies in Japan (especially large companies) are becoming more proactive in that regard ESG in Japan Although startups are aware of the increasing interest and demand for ESG, overall they are struggling to prioritize and advance ESG efforts given their limited management resources Current status of Japanese startups What is ESG? ESG is a strategic framework for companies to realize sustainable growth by organizing various key company business activities into the three categories of E (Environmental), S (Social), and G (Governance) Current state of ESG efforts among Japanese startups

Current State of ESG Efforts Among Japanese Startups (1/2) 1 • ESG efforts driven by “growing social momentum for ESG” and “requests from investors and employees” – Top 3 reasons triggering ESG implementation: 68% of respondents mentioned that their ESG efforts are fueled by “growing social momentum for ESG” with 50% citing “requests from investors” and 24% “requests from employees” • 4 main objectives for engaging in ESG efforts are “branding,” “promoting the purchase and use of company services and products,” “loyalty and retention improvement,” and “development of strategies” – 72% of respondents selected one of the above four reasons as their primary objective • Most startups that have engaged in ESG efforts feel that doing so made a real impact on their business. In particular, a large number of startups felt efforts contributed to the “promotion of employee retention & recruitment” – 93% of companies that engaged in ESG efforts cited at least one factor that “had a real impact on business performance and operations” – 46% of respondents to the above question selected “promotion of employee retention & recruitment” as one of the top 3 factors • The primary bottlenecks working against undertaking ESG are “lack of resources” and “lack of knowledge on ESG” – 42% of respondents mentioned that they “cannot afford to allocate resources to ESG” and 16% cited a “lack of knowledge on ESG” as key bottlenecks Early-stage: Series B or before Later-stage: Series C onwards Overall Current state of ESG efforts among Japanese startups

Environmental Current State of ESG Efforts Among Japanese Startups (2/2) Note: 1. DEI = Diversity, Equity, and Inclusion • Except for environmentally focused/manufacturing startups, “efforts to measure and reduce GHG emissions” are currently limited – 74% of respondents have not yet measured GHG emissions; 64% have no initiatives in place to reduce emissions • DEI1: Although the level of DEI efforts vary by company, at many startups, the proportion of women in management roles tends to be very low compared with the total share of women employees – Although 42% of companies have not engaged in DEI initiatives, 32% have invested in training to minimize employee prejudice and bias – 78% of respondent companies have 20% or higher women employee representation, but only 26% have 20% or more women in management roles • Talent engagement: Most companies have implemented “support for remote work” and “childcare leave” – 88% of respondents answered that they have “established a remote work policy” and 86% answered that they have a “childcare leave system for employees” Social • Limited representation of internal and external “women & foreign nationals on Board of Directors” – (Internal/external directors included) 50% of respondent startups have no women directors and 88% have no foreign national director representation on their BOD • Significant difference in level of whistleblowing initiatives implementation by stage, with most later stage companies having a whistleblowing process and half of them actually “utilizing the whistleblowing process" – 97% of later-stage startups have “a whistleblowing mechanism/process” and 53% have “whistleblowing mechanisms that had actually been used” • Greater tendency for later stage startups to engage in data security and privacy efforts compared with early-stage ones – 97% of later stage startups have worked “to maintain compliance with privacy regulations” and “manage the security of information terminals used by employees” – 64% of startups have a data privacy incident tracking system in place with 53% of those with such systems actually measuring incidents Governance 1 Early-stage: Series B or before Later-stage: Series C onwards Current state of ESG efforts among Japanese startups

Overview of Survey Respondent Companies Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Unfunded or pre- Series A funding raised/ planned Series C funding raised/ planned Series A funding raised/ planned Series B funding raised/ planned Listed company 4% 24% 8% 38% 26% (% of companies) 2 4 12 19 13 Number of companies Total: 50 companies Full-time employees Other employees (% of companies) 4% 10% 22% 32% 20% 6% 2% 4% 201~ 300 0~10 Over 500 11~30 31~50 301~ 500 51~ 100 101~ 200 28% 32% 24% 6% 6% 2% 2% 301~ 500 201~ 300 101~ 200 0~10 11~30 31~50 51~ 100 Stage Number of employees (as of end of 2021) (Employees) (Employees) (% of companies) 1 Survey: Overall Later-stage Early-stage Current state of ESG efforts among Japanese startups

ESG initiatives driven by "growing social momentum for ESG" and further catalyzed by "requests from investors and employees" 40% 14% 12% 10% 28% 36% 18% 14% 16% 10% 12% Consumer needs & opinions Growing social momentum for ESG Requests from investors 6% 6% Requests from employees Research & case studies demonstrating the need for & effectiveness of ESG 4% 6% Expansion/ consideration to enter overseas markets Requests from business partners 12% Others No initiatives implemented 4% Incidents incl. accidents/ problems Top 1 Top 2&3 68% 50% 16% 24% 4% 20% 18% 16% 10% 2% Please select the factors/events that led you to initiate/accelerate your ESG efforts (please select and rank up to the 3 most applicable options, in order) 1 Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Overall Current state of ESG efforts among Japanese startups

4 main objectives for engaging in ESG are "Branding," "Promoting the purchase and use of company services and products," "Loyalty and retention improvement," and "Development of strategies" 20% 24% 14% 14% 8% 6% 6% 28% 18% 20% 16% 24% 20% 16% 12% 14% 8% Innovation catalyst 2% Others Branding Risk management Loyalty and retention improvement Promotion of purchase/usage of company's services/products Development of strategies, clarification/ visualization of company's direction 2% Increase level of interest and aspiration to work for the company Improvement of motivation/ work efficiency 4% Clearance of financing and investment requirements 2% 48% 42% 34% 30% 26% 22% 20% 20% 20% Top 1 Top 2&3 Please select the key objectives/goals when engaging in ESG efforts (please select and rank up to the 3 most applicable options, in order) Total of Top 4: 72% 1 Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Overall Current state of ESG efforts among Japanese startups

Out of the startups that have engaged in ESG efforts, 93% felt a real impact on their business performance and operations Engaged in ESG efforts: 45 companies Felt real impact from ESG efforts: 42 companies Approx. 93% (42 out of 45 companies) felt that ESG efforts had a real impact on their business Please select the aspects of how engaging in ESG efforts contributed to real impact on your company’s business performance and operations (please select and rank up to the 3 most applicable options in order) 20% 24% 10% 8% 12% 10% 26% 10% 20% 20% 12% 14% Improvement of purchase/usage of the company’s services/products by consumers 46% Improvement of employee retention and recruitment Minimize risk/damage to the company Improvement of purchase/usage of company’s services/products from business partners Promotion of cross-functional communication among employees Improvement in investment commitment/ valuations from investors 6% 4% 2% Others 20% 6% Engaged in ESG efforts, but no actual impact felt 4% 30% No engagement in ESG efforts Top 1 Top 2&3 34% 28% 24% 6% 6% 14% 1 Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Overall Current state of ESG efforts among Japanese startups

Key bottlenecks working against ESG efforts undertaken include lack of resources and lack of knowledge on ESG 2% 2% 42% 16% 6% 6% 6% 6% 14% Can’t see/feel the benefits of ESG from the company’s perspective Difficult to allocate resources to ESG Stakeholders don't understand, even if engaging in ESG efforts ESG requirements /requests vary among stakeholders, making it difficult to approach Lack of knowledge on ESG Difficult to reach consensus on ESG initiatives implementation due to varying levels of recognition of ESG importance within the company Unable to prioritize among ESG initiatives Unable to identify specific approaches to priority initiatives Others No bottlenecks 0% What are the primary bottlenecks impeding your engagement in ESG efforts? (please select and rank up to the 3 most applicable options in order) Top 1 reason Want to engage in ESG Decide to engage in ESG Prioritize among ESG initiatives Decide what to engage in Limited reason to engage in ESG efforts Various constraints make it challenging to start the actual engagement Don’t know where to start/what to prioritize Don’t know exactly how to execute Bottle- neck 1 Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Overall (bottlenecks) Current state of ESG efforts among Japanese startups

Startups’ efforts to measure and reduce greenhouse gas emissions are currently limited 74% 4% 20% 2% 0% 40% 80% Level 1: No measurement of GHG emissions directly attributable to the company (Scope 1) Level 3: Measures emissions up to in-house use of electricity, heat, and steam (Scope 2) Level 2: Measures GHG emissions only directly attributable to the company (Scope 1) Level 4: Measures up to indirect emissions from business activities of suppliers related to the company (Scope 3) 64% 24% 6% 6% 0% 40% 80% Level 4: Implementation of emission reduction initiatives and effectiveness measured based on target setting, /implementation of improvement initiatives Level 2: Implementation of initiatives to reduce emissions, but effectiveness has not been measured Level 1: No specific initiatives Level 3: Implementation of initiatives to reduce emissions and effectiveness measured Characteristics of companies with high level of engagement in measuring and reducing GHG emissions: • Companies engaged in environment-related business operations and activities • Companies likely to receive environmental response requests from the supply chain both upstream and downstream Level of effort to measure GHG emissions Level of effort to reduce GHG emissions 1 Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Environmental Current state of ESG efforts among Japanese startups

No engagement 42% of companies have not engaged in DEI initiatives, but 32% have invested in training to minimize employee prejudice and bias 42% 32% 26% 22% 14% 4% 10% Others (Managers/executives) participate in learning opportunities regarding DEI Set Diversity, Equity, and Inclusion (DEI) policies Invest in training and resources to eliminate employee prejudice, bias, etc. Set diversity goals appropriate to the no. of employees and business (e.g., no. of women and foreign nationals) Include customers and business partners in company Diversity, Equity, and Inclusion (DEI) policy Please select whether your company engages in the following initiatives related to employee Diversity, Equity, and Inclusion (DEI) (multiple selections allowed) 1 Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Social Current state of ESG efforts among Japanese startups

While 78% of companies have 20% or higher women employee representation, only 26% have 20% or higher women in management roles and only 18% have 20% or higher women in CXO roles 78% 26% 18% 22% 74% 82% More than 20% women Less than 20% women Staff Management CXO 18% 82% 92% 92% Less than 20% foreign nationals 8% Staff CxO More than 20% foreign nationals Management 8% Number of companies (%) Percentage of women employees in each tenure (Ref.) Percentage of foreign nationals in each tenure About 80% of all companies have 20% or more female employee representation Around 20% of companies have 20% or more women in management/ CXO roles 1 Number of companies (%) Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Social Current state of ESG efforts among Japanese startups

88% of companies are engaged in "setting up a remote work policy" and 86% are working on a "childcare leave system for employees" 98% 88% 86% 68% 66% 66% 62% 58% 52% 46% 44% 42% 16% 8% Track record of male employees taking childcare leave Support groups set up by topic (working parents, foreign nationals, etc.) Track record of female employees taking parental leave Preparing disaster prevention manuals, etc. to ensure employee safety as priority (e.g., in case of disaster) Remote work policy Attendance mgmt. system 0% Childcare leave system for employees Employee mental health support Specific leave initiative (e.g., menstrual leave) Support for balancing work & childcare Support for balancing work & nursing care Employee engagement survey (if available, provide name of tool implemented) Provide career support such as coaching/ mentorship, etc. Existence of supplier selection policy No engagement Others 0% Please select whether your company engages in the following policies/processes regarding talent engagement (multiple selections allowed) 1 Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Social Current state of ESG efforts among Japanese startups

Limited representation of women and foreign nationals on boards of directors, both internal and external Women internal & external directors Foreign national internal & external directors Appointment of women directors to BOD 50% Appointment of foreign national to BOD 12% 10% 14% 26% 50% Women external directors only Have both women internal & external directors Women internal directors only No internal or external women directors 6% 2% 4% 88% Foreign national external directors only Have both foreign national internal & external directors Foreign national internal directors only No internal or external foreign national directors Appointment of women internal directors 24% Appointment of foreign national internal directors 8% 1 Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Governance Current state of ESG efforts among Japanese startups

Significant difference in level of whistleblowing initiatives implemented by stage with 97% of respondents in the later stage having a whistleblowing mechanism in place and 53% with a track record of using it 50% 33% 17% 0% 30% 60% Level 3: Whistleblowing mechanism/ process in place with record of actual use Level 1: No whistleblowing mechanism/ process Level 2: Whistleblowing mechanism/ process in place, but no record of actual use 60% 0% 30% 3% Level 3: Whistleblowing mechanism/ process in place with record of actual use Level 1: No whistleblowing mechanism/ process 44% Level 2: Whistleblowing mechanism/ process in place, but no record of actual use 53% Please select the level of implementation regarding whistleblowing mechanisms/ processes in place (select only the most appropriate answer) Early-stage (n=18) Later-stage (n=32) Whistleblowing mechanism in place 50% Whistleblowing mechanism in place 97% 1 Early-stage: Series B or before Later-stage: Series C onwards Whistleblowing track record Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Governance Current state of ESG efforts among Japanese startups

Greater tendency for later-stage startups to engage in data security and privacy efforts with 97% "maintaining compliance with privacy regulations" and "managing security of information terminals used by employees" 61% 56% 67% 56% 39% 44% 22% 33% 22% 0% 100% 0% 0% 97% 97% 88% 84% 75% 72% 66% 56% 41% 3% 0% 100% 0% Obtain privacy Mark/ISMS Implement/ use vulnerability assessment tools for in- house developed code Establish data management officer Security management of information terminals used by employees Maintain compliance with privacy- related regulations, privacy laws, PIPL, etc. Establish data management policy Set up two- step authentication to gain access to company information Conduct third- party security audits/system audits Develop security handbook Others No engagement Later-stage (n=32) Early-stage (n=18) What initiatives do you implement around data security and privacy? (multiple selections allowed) 1 Early-stage: Series B or before Later-stage: Series C onwards Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Governance/Social Current state of ESG efforts among Japanese startups

64% of surveyed startups have a data privacy incident tracking system in place, with 53% of those with such systems actually measuring incidents 64% 36% Do not implement Implement 100% Existence of methods and tools to measure the number of data- privacy-related incidents Existence of Methods and Tools Used to Measure the Number of Data Privacy Related Incidents and Number of Incidents in 2021 Number of incidents in 2021 (related to handling of personal information) 0 incidents: 14 companies 1~2 incidents: 12 companies 3~4 incidents: 3 companies 5 or more incidents: 2 companies No tracking of incidents: 1 company 1 (17 of 32 companies) 53% of companies implemented a system Note: n = 50 Source: MPower/BCG "Survey on ESG Initiatives (2022)" Survey: Governance/Social Current state of ESG efforts among Japanese startups

Report Content Current State of ESG Efforts Among Japanese Startups • Current ESG situation in Japan and outside of Japan • Current state of ESG efforts among Japanese startups • (Survey results and analysis) 1 2 Learnings From ESG Practitioners 23 • Significance of ESG initiatives • 7 Principles for activating ESG efforts • Summary of recommended actions Copyright © 2022 by MPower Partners. All rights reserved.

Securing investment (short- to medium-term) Sales improvement (medium- to long–term) Ensuring sustainable growth Significance of ESG Initiatives 3 Key Contributions of ESG to Business Performance and Operations Future (fore- cast) ESG may become increasingly important to a wider range of industries due to increased awareness of ESG among consumers and stricter regulations/social pressures/etc. on large companies ESG could become increasingly important, including at pre-listing stage, as VCs abroad continue to integrate ESG factors when making investment decisions Current status For directly ESG-related businesses/ manufacturing startups, S (Social) and E (Environmental)-related efforts contribute and respond to customer needs and business- partner requests For startups that are going public/just listed, G (Governance)-related efforts contribute to preparations of and responses to institutional investor requests For startups across a wide range of stages/industries, S (Social) and G (Governance)-related efforts contribute to overcoming barriers/risks to sustainable growth As the scale of startups (funding amount) abroad is increasing, ESG may become increasingly important to achieve sustainable growth in Japan Barriers/risks to sustainable growth listed on following page 2 1 Responding to trade requirements of large companies and consumer preferences (B2C) Raising funds from VCs, achieving listing requirements, and appealing to investors after going public Creating an organization & strategies for continued business growth 3 2 Significance/ principles for ESG

(Ref.) Barriers/Risks to Sustainable Startup Growth Startups carry unique risks and challenges different from those of large corporations as they strive for sustainable growth • Key functions (especially around finance/HR) become concentrated in the hands of select personnel, resulting in a black box (even within a small organization) making it difficult to prevent/notice violations and wrongdoing • The company culture that was naturally shared within the startup at the onset starts to break down as the org keeps growing (50~100 staff) with the overall organization robustness and purity declining • Inability to adapt organizational structure and board composition to match each stage/changes in market condition results in a gap between the organization's board/executive structure/capabilities and what is required • Amid accelerated competition for top talent among startups, the organization is unable to retain and recruit talent necessary for continued and stable growth/maintaining top quality • As a result of organizational expansion and remote work due to Covid, there is less interdepartmental communication among employees, leading to a decline in information transparency and collaboration • After the business reaches a steady state, staff and the organization become fixed at optimizing the existing business, resulting in creative and innovation stagnation • When a business that has been performing well suddenly faces a crisis due to rapid changes in the market/competition, the organization itself collapses along with the business and the crisis cannot be overcome 2 Significance/ principles for ESG Advanced startups mitigate the above risks and achieve sustainable growth through ESG (especially S/G) efforts A B C D E F G

1 2 3 4 5 6 7 Customize and integrate ESG as part of the overall business strategy, ensuring it is adapted to fit the needs of the organization Link key organizational values with employee evaluations/hiring requirements to ensure those values are ingrained deeply in all employees Change and evolve governance structure in response to a company’s stage and market changes To recruit and retain talented personnel, create a diverse work environment where employees from all backgrounds can thrive Without compromising on speed, develop a mechanism to respond to risks that occur/increase as a company expands Identify company’s key challenges by developing a quantitative understanding of its situation and conducting benchmarking against other companies Underpinned by management commitment, execute on actions that can be undertaken in the short term even without vast resources/knowledge Direction setting Org development and growth Effective mgmt. & risk control 1 2 3 4 Strategy formulation Culture development Organization building (mgmt. structure) Organization building (HR dev. & retention) 5 6 7 Risk mgmt. Current issue visualization Bottleneck resolution 2 Principles that guide ESG initiatives Significance/ principles for ESG Recap 7 Principles for Activating ESG Efforts (1/2) Principles for Linking ESG Initiatives to Sustainable Growth, Based on Advanced Case Studies From Inside and Outside Japan

Direction setting Org development and growth Effective mgmt. & risk control 7 Principles for Activating ESG Efforts (2/2) Principles for Linking ESG Initiatives to Sustainable Growth, Based on Advanced Case Studies From Japan and Outside Japan 2 Although the above principles apply foremost to middle-stage and larger companies, it’s important for earlier-stage companies to understand these principles that help companies through their maturity Principles that guide ESG initiatives Change and evolve governance structure in response to a company’s stage and market changes • Establish optimal governance as HR/org requirements change along with organizational and surrounding environment evolvements Link key organizational values with employee evaluations/hiring requirements to ensure those values are ingrained deeply in all employees • Verbalize values from an employee's perspective and embed them within the organization to levels where all employees can understand and recite them To recruit and retain talented personnel, create a diverse work environment where employees from all backgrounds can thrive • Develop a comfortable working environment for foreign engineers and one that does not disadvantage women Without compromising on speed, develop a mechanism to respond to risks that occur/increase as a company expands • Document/formalize knowledge and develop a mechanism that prevents and/or detects early misconduct Identify company’s key challenges by developing a quantitative understanding of its situation and conducting benchmarking against other companies • Cultivate a common understanding of key challenges within the company by leveraging data and agreeing on necessary initiatives Underpinned by management commitment, execute on actions that can be undertaken in the short term even without vast resources/knowledge • With management support, a volunteer-based team can start working on issues of interest and foremost need Customize and integrate ESG as part of the overall business strategy, ensuring it is adapted to fit the needs of the organization • Embody ESG considerations into management thinking to materialize initiatives for sustainable growth Initiative objective Significance/ principles for ESG 2 3 4 5 6 1 7 Strategy formulation Culture development Organization building (mgmt. structure) Organization building (HR dev. & retention) Risk mgmt. Current issue visualization Bottleneck resolution Copyright © 2022 by MPower Partners. All rights reserved.

Principles for ESG (1/7): Strategy Formulation 2 Significance/ principles for ESG Customize and integrate ESG as part of the overall business strategy, ensuring it is adapted to fit the needs of the organization Strategy formulation • Leverage ESG as one perspective to evolve the organization and overall business (e.g., refer to MPower ESG Playbook and this document) • Management works to understand the significance of pushing ESG initiatives forward to the overall company and clearly verbalizes such meaning in its own words Start by engaging in initiatives that are important for the company from a business/product/organization lens, rather than being overly fixed on fitting everything into an ESG framework • " As a printing company that uses large volumes of paper, we implemented measures that took into account the environmental requests of our customers as we sought to close deals with large companies." (Raksul) • " In alignment with our vision, we commit to increasing accessibility. To this end, we have visually impaired engineers participate in the development process of our product and strive to continually improve our offering." (freee) • " As the business required strong relationships with the local community, we worked to contribute to the revitalization of the community through education and other fields." (EC startup: Japan) • " When the company’s ESG activities were included in product promotion emails, the conversion rate became higher than usual, resulting in increased product sales." (Cosmetics startup: US) Accelerate initiatives by ensuring management's commitment and clear understanding of how their business is linked to the ESG framework • " In the initial phases, our COO was in charge of all ESG-related initiatives, which were addressed not as ESG specific, but as a part of our broader management agenda." (EC startup: Japan) • " Unless management has a deep understanding, it will be very challenging to materialize ESG plans and detail out how ESG links with broader strategy." (Money Forward) • " A strong CEO commitment is essential, as it touches the core values of the company and naturally implies a trade-off between ESG mid- to long-term contributions and short-term expenditure." (Contentsquare: France) • " It's difficult to measure ESG effectiveness in terms of short-term ROI, so budget/resources need to be secured based on a strategic decision/direction on the part of the CEO." (Logistics startup: South Korea) Advanced case studies • 93% of companies that implemented ESG initiatives selected at least one factor, believing that it "made a real contribution to business ops/performance" – E.g., 46% said that the initiatives led to "promotion of employees retention & recruitment," while 34% said that they led to "increased purchases/usage of company products/services by business partners" Survey results Source: MPower/BCG "Survey on ESG Initiatives (2022)," interviews with leading companies in Japan and outside of Japan, expert interviews 1 Specific action plans

Principles for ESG (2/7): Culture Development 2 Significance/ principles for ESG Link key organizational values with employee evaluations/hiring requirements to ensure those values are ingrained deeply in all employees Culture development • Inscribe values written from the employee perspective (that can be directly linked to evaluation and recruitment) under the Company Philosophy • Formulate/review standards for employee evaluation and recruitment based on core company values • Increase visibility of company values to employees (e.g., post through various channels including in- house newsletters, embedded as part of employee awards, Slack emojis, etc.) Synthesize the values/philosophy you want employees to embody/care about and link them to employee evaluations/hiring requirements • " We developed hiring requirements in alignment with values crystalized from an employee’s perspective and encourage our employees to work in accordance with those values after joining the company as well." (EC startup: Japan) • " All group employees shared a culture of 'Speed, Pride, Teamwork, Respect, Fun, and values of 'User Focus, Technology Driven, Fairness’." (Money Forward) • " Crystalizing a concrete purpose that integrated the perspectives of all stakeholders has been helpful in ensuring everyone's alignment in the same direction." (Kickstarter: US) Ensure that company core values are easy to recall in terms of overall content/volume, and increase employee exposure to these values in order to ingrain them fully to the point where they can be well understood and repeated by all employees • " While we have a corporate culture that values autonomy, we actively hold company-wide events (online included) to provide opportunities for everyone to share experiences in alignment with core values." (freee) • " We work to engrain values in our employees by posting them within the company and using them as names of meeting rooms and providing associated awards." (EC startup: Japan) • " We reduced the overall length and number of values to make it easier for employees to remember them as well as posting them in various places around the office, including restrooms." (B2C service startup: Japan) Advanced case studies • 46% of respondents selected “promotion of employee retention & recruitment” as one of the top 3 factors they believe ESG initiatives made an actual contribution, with 20% selecting it as their top factor • 52% of respondents selected “talent engagement” as one of the top 3 important issues within ESG, with 10% selecting it as their top issue Survey results Source: MPower/BCG "Survey on ESG Initiatives (2022)," interviews with leading companies in Japan and outside of Japan, expert interviews 2 Specific action plans

Principles for ESG (3/7): Organization Building (Management Structure) 2 Significance/ principles for ESG Change and evolve governance structure in response to a company's stage and market changes Organization-building (Mgmt. structure) • CEO/COO/CHRO and other management consider and prepare to meet organizational design requirements for each startup stage, factoring mid- to long- term perspectives • Based on changing market environment/technolog ical trends/business strategies, identify key capability gap areas and hire the necessary personnel • (before/after IPO) Review BOD composition in response to institutional investors’ requests and to meet listing requirements Review management structure in line with market changes/company stage even before considering going public • " The presence of a COO who understood the appropriate org design required at each stage contributed to overall steady growth." (EC startup: Japan) • " A professional with knowledge in overseas business/Web3 joined our board of directors to strengthen the business." (B2C service startup: Japan) • " Regardless of whether the company plans to list or not, it's always looking to evolve its management structure, such as by hiring a CSO (Chief Strategy Officer), in line with technological evolution." (Kickstarter: US) Review BOD composition before/after going public in response to investor requests and opportunity to restructure the organization after IPO • " We became more conscious of our board's diversity (gender and nationality-wise) after going public and in response to requests from institutional investors." (EC startup: Japan) • " We hired talented new personnel and adjusted our management structure to align with the organization’s growth phase and key transitions, including when listing the company." (freee) Advanced case studies • 56% of early-stage companies selected "risk management promotion" as the main objective of corporate governance, with 34% of later- stage companies also emphasizing "strategy formulation and direction clarification" as a key goal Survey results Source: MPower/BCG "Survey on ESG Initiatives (2022)," interviews with leading companies in Japan and outside of Japan, expert interviews 3 Specific action plans

To recruit and retain talented personnel, create a diverse work environment where employees from all backgrounds can thrive Principles for ESG (4/7): Organization Building (HR Development & Retention) 2 Source: MPower/BCG "Survey on ESG Initiatives (2022)," interviews with leading companies in Japan and outside of Japan, expert interviews, web research Nikkei Business Online, "The Return of Takashi Mitachi's 'Management Lens Box': What Elements of Diversity Contribute to Innovation?" (August 7, 2017) Organization building (HR development & retention) Significance/ principles for ESG • Set KPIs to measure how conducive the work environment is toward maximizing contribution from a diverse workforce and assign a representative/depart ment responsible to oversee improvements • Management to ramp up and learn the importance of DEI/unconscious bias via books and web- based learning • Conduct regular unconscious bias training for all employees To hire as many talented professionals as possible, expand the addressable talent pool by creating a work environment where a diverse workforce can thrive • " There should be a large addressable talent pool to enable sustainable growth and feel that a company that only employs people with strong physical stamina would be an unbalanced/distorted organization." (freee) • " Given the lack of domestic engineers in Japan, we adjusted our internal communication language and cultural environment to attract talented foreign engineers." (EC startup: Japan) To retain key talent, create an environment conducive to helping all employees maximize their individual abilities and contributions • " We conduct company-wide DEI trainings, including unconscious bias training, to help employees understand matters from the perspectives of others." (freee) • " To help push work-style reform initiatives and understand issues from a woman employee's perspective as well, we decided to appoint a female president." (Web service startup: Japan) • " HR oversees DEI-related KPIs, such as ‘the percentage of employees who understand DEI concepts/value,’ which is reflected in bonuses." (Vestiaire Collective: France) In addition, a diverse workforce contributes to the organization's overall creativity and understanding the needs of a broader customer base • " A high level of diversity in terms of industry background, country of origin, career path, and gender is positively related with innovation." (BCG's Takashi Mitachi in Nikkei Business Online) • " We strive to hire employees from a diverse set of countries and gender in order to understand the needs of customers in each nation." (Vestiaire Collective: France) Advanced case studies • While 78% of companies surveyed have "20% or more female employees" representation, only 26% have "20% or more female managers" • 32% of respondents "invest in training and other resources to eliminate employee prejudice, bias, etc." • 62% of respondents answered that the purpose behind DEI initiatives is to "improve employee retention," while 46% cited them as being to "increase employee interest/aspiration to work for the company" Survey results 4 Specific action plans

Principles for ESG (5/7): Risk Management 2 Significance/ principles for ESG Without compromising on speed, develop a mechanism to respond to risks that occur/increase as a company expands Risk management • Implement harassment- prevention training to clarify "what is vs. what is not allowed" • Establish internal and external whistleblowing channels and ensure that whistleblower protection/confidential ity rules are well understood across the organization (e.g., incorporate within trainings, etc.) • Document internal knowledge/manuals leveraging documentation tools While taking measures to prevent misconduct as much as possible, develop a system to detect early and manage misconduct effectively under the assumption that there will be a few cases • " We established a contact channel to report misconduct 2~3 years before going public, taking early measures on listing requirements including risk management." (EC startup: Japan) • " We established a harassment counseling office that guarantees confidentiality and independence prior to the enactment of the Power Harassment Prevention Act." (B2C service startup: Japan) • " We introduced a service that constantly detects and records harassment within the company detecting problems more reliably than whistleblowing." (B2B tech startup: UK) Document knowledge and make it accessible to the organization instead of concentrating it in the hands of an individual • " We try to eliminate situations where information is known only to certain individuals as much as possible, and actively share knowledge/best practices through Notion and other tools." (B2C service startup: Japan) • " We established a system to share knowledge regarding DEI and the company approach from management level to the most junior employees in a top-down/ cascading manner." (Vestiaire Collective: France) • " We enable employees to share knowledge/learn any time by utilizing an e-learning platform that is constantly updated." (Vestiaire Collective: France) Advanced case studies • 64% of respondents have "tools to measure the number of data privacy incidents," out of which 53% have experienced "incidents involving the handling of personal information" • 80% of respondents have "a whistleblowing mechanism/process" in place and approx. half of them have utilized such a mechanism • 97% of later-stage respondents "maintain privacy compliance" and "manage security of information terminals/devices used by employees" Survey results Source: MPower/BCG "Survey on ESG Initiatives (2022)," interviews with leading companies in Japan and outside of Japan, expert interviews 5 Specific action plans

Principles for ESG (6/7): Current Issue Visualization 2 Significance/ principles for ESG Identify company's key challenges by developing a quantitative understanding of its situation and conducting benchmarking against other companies Current issue visualization • Regularly conduct an engagement survey to be completed by all employees and explain/share the results afterwards • Analyze data through various lenses, such as time series and gender, to identify key issues and implement PDCA cycles • Consider and assess initiatives to engage in by referencing other companies that can serve as benchmarks and provide perspective on target goals Clarify current status and key challenges faced by the company through surveys and crystalize initiatives important for the company • " People survey results are linked to existing HR system reforms to quantitatively visualize challenges faced by the company." (Raksul) • " We run original people surveys on an annual, monthly, and bi-weekly basis to understand the latest situation and engagement of our staff and to adjust measures accordingly." (freee) • " We conduct a people survey once every two months with the survey participation rate and survey results impacting employee and executive bonuses, respectively." (Vestiaire Collective: France) Referring to initiatives undertaken by other companies, clarify engagement level and target goals the company is aspiring to achieve • " Based on direction from outside directors, we exchanged information with other companies in order to understand the current status of initiatives undertaken and ESG scores. We prioritized clarifying and crystalizing target goals." (Money Forward) • " Benchmarking ESG-related initiatives of large companies, including recruit[ing] and other companies, with similar business content/size enable[ing] us to identify what we should be working on next and the commitment level we should be targeting." (freee) • " Leveraging OKRs (Objective Key Results), we clarified the target level of engagement both in terms of quantitative and qualitative KPIs." (EC startup: Japan) Advanced case studies • 33% of companies in the early stages and 63% in the late stages implement an "employee engagement survey" • 44% of respondents are asking investors for "assistance on setting up and monitoring KPIs related to ESG initiatives" Survey results Source: MPower/BCG "Survey on ESG Initiatives (2022)," interviews with leading companies in Japan and outside of Japan, expert interviews 6 Specific action plans

Principles for ESG (7/7): Bottleneck Resolution 2 Significance/ principles for ESG Specific action plans Underpinned by management commitment, execute on actions that can be undertaken in the short term even without vast resources/knowledge Bottleneck resolution • Senior management to participate in workshops and information-exchange meetings with other companies to deepen understanding of ESG topics, etc. • Develop a cross- departmental team of volunteers with a keen interest in ESG to work with the support of senior management • Initially, push forward initiatives in a lean manner and, even if results are not perfect, develop outputs and communicate both internally and externally Initially, a volunteer-based team should tackle feasible challenges being supported by management • " Supported by a team of three volunteers, the CSO acts as the leader and head of ESG activities." (Kickstarter: US) • " Members interested in ESG voluntarily worked on DEI and related initiatives with the company’s approval and encouragement." (freee) After going public, reorganize initiatives that have been conducted to date without much emphasis on ESG and disclose them under an ESG framework • " Rather than launching new ESG-related initiatives, we first organized and disclosed existing initiatives by linking them to an ESG framework." (Money Forward) • " After going public, partially at the request of investors, we reorganized internal initiatives to date linking them to an ESG framework." (freee) Leverage information from both outside resources and existing institutions, even if the company has limited ESG expertise • " We initially leveraged accessible online information and books to learn ESG basics while simultaneously working on projects." (EC startup: Japan) • " The CSO is developing relationships and collaborating with external organizations in order to address gaps in ESG knowledge and accelerate future initiatives." (Kickstarter: US) • " After going public, we consulted with an external organization knowledgeable on ESG issues in order to determine which specific initiatives we should prioritize." (freee) Advanced case studies • 42% of respondents cited "lack of resources" and 16% "lack of knowledge of ESG" as the biggest bottlenecks hindering ESG initiatives undertaking Survey results Source: MPower/BCG "Survey on ESG Initiatives (2022)," interviews with leading companies in Japan and outside of Japan, expert interviews 7

Summary of Recommended Actions 2 Recommended actions (Green text: recommended to start as early as possible) • Leverage ESG as one perspective to evolve the organization and overall business (e.g., refer to MPower ESG Playbook and this document) • Management works to understand the significance of pushing ESG initiatives forward to the overall company and clearly verbalizes such meaning in its own words • Implement harassment prevention training to clarify "what is vs. what is not allowed" • Establish internal and external whistleblowing channels and ensure that whistleblower protection/confidentiality rules are well understood across the organization (e.g., incorporate within trainings, etc.) • Document internal knowledge/manuals leveraging documentation tools • Senior management to participate in workshops and information-exchange meetings with other companies to deepen understanding of ESG topics, etc. • Develop a cross-departmental team of volunteers with a keen interest in ESG to work with the support of senior management • Initially, push forward initiatives in a lean manner and, even if results are not perfect, develop outputs and communicate both internally and externally • Set KPIs to measure how conducive the work environment is toward maximizing contributions from a diverse workforce and assign a representative/department responsible to oversee improvements • Management to ramp up and learn the importance of DEI/unconscious bias via books and web-based learning • Conduct regular unconscious bias trainings for all employees Initiative objective • Regularly conduct an engagement survey to be completed by all employees and explain/share the results afterwards • Analyze data through various lenses, such as time series and gender, to identify key issues and implement PDCA cycles • Consider and assess initiatives to engage in by referencing other companies that can serve as benchmarks and provide perspective on target goals • Inscribe values written from the employee perspective (that can be directly linked to evaluation and recruitment) under the Company Philosophy • Formulate/review standards for employee evaluation and recruitment based on core company values • Increase visibility of company values to employees (e.g., post through various channels including in-house newsletters, embed as part of employee awards, Slack emojis, etc.) Significance/ principles for ESG • CEO/COO/CHRO and other management consider and prepare to meet organizational design requirements for each startup stage, factoring mid- to long-term perspective • Based on changing market environment/technological trends/business strategies, identify key capability gap areas and hire the necessary personnel • (before/after IPO) Review BOD composition in response to institutional-investor requests and meet listing requirements 2 3 4 5 6 1 7 Strategy formulation Culture development Organization building (mgmt. structure) Organization building (HR dev. & retention) Risk mgmt. Current issue visualization Bottleneck resolution

Leverage MPower ESG Playbook to Guide Your ESG Efforts MPower HP https://www.mpower-partners.com/blog_jp_category/playbook/ https://mpower-partners.notion.site/mpower-partners/EN- MPower-Startup-ESG-Playbook-e6af70b0c18a4f93b6fbee62a9d6cdb2 MPower Notion JP EN https://mpower-partners.notion.site/mpower-partners/JP-MPower- Startup-ESG-Playbook-40a2c7e005bc43cf8cb25237de05dc5f

Companies That Answered the Survey (30) Agatha Alue Asuene AxisRoot Holdings CureApp enechain ENECHANGE Euglena freee Gojo and Company HashPort JEPLAN Luup Manga Box MediPhone Mitsumoa On-Sight RABO Rehab for JAPAN Ridge-i SENSYN ROBOTICS SHE souco Spiber Star Mica Holdings TechMagic UniFa Wovn Technologies XTalent Yuimedi *Includes only companies that have given permission to disclose their company name *In addition, 20 companies chose to remain anonymous *Listed in alphabetical order 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Contentsquare freee Kickstarter Money Forward RAKSUL Vestiaire Collective 1 2 3 4 5 6 Companies Interviewed (6) *Includes only companies that have given permission to disclose their company name *In addition, 4 companies chose to remain anonymous *Listed in alphabetical order

Contacts Managing Director & Partner Katsuyoshi Kurihara [email protected] Managing Director & Partner Miho Orimo [email protected] General Partner Yumiko Murakami [email protected] Principal Yuna Sakuma [email protected]

© MPower Partners. 2022. All Rights Reserved. This report was created based on joint research and study by MPower Partners and Boston Consulting Group (BCG). This document has been prepared in good faith on the basis of information available at the date of publication without any independent verification. MPower and BCG do not guarantee or make any representation or warranty as to the accuracy, reliability, completeness, or currency of the information in this document nor its usefulness in achieving any purpose. Readers are responsible for assessing the relevance and accuracy of the content of this document. It is unreasonable for any party to rely on this document for any purpose and MPower and BCG will not be liable for any loss, damage, cost, or expense incurred or arising by reason of any person using or relying on information in this document. To the fullest extent permitted by law (and except to the extent otherwise agreed in a signed writing by MPower and BCG), MPower and BCG shall have no liability whatsoever to any party, and any person using this document hereby waives any rights and claims it may have at any time against MPower and BCG with regard to the document. Receipt and review of this document shall be deemed agreement with and consideration for the foregoing. This document is based on a primary qualitative and quantitative research executed jointly by MPower and BCG. MPower and BCG do not provide legal, accounting, or tax advice. Readers are responsible for obtaining independent advice concerning these matters. This advice may affect the guidance in the document. Further, MPower and BCG have made no undertaking to update the document after the date hereof, notwithstanding that such information may become outdated or inaccurate. MPower and BCG do not provide fairness opinions or valuations of market transactions, and this document should not be relied on or construed as such. Further, any evaluations, projected market information, and conclusions contained in this document are based upon standard valuation methodologies, are not definitive forecasts, and are not guaranteed by MPower or BCG. MPower and BCG have used data from various sources and assumptions provided to MPower and BCG from other sources. MPower and BCG have not independently verified the data and assumptions from these sources used in these analyses. Changes in the underlying data or operating assumptions will clearly impact the analyses and conclusions. This document is not intended to make or influence any recommendation and should not be construed as such by the reader or any other entity. This document does not purport to represent the views of the companies mentioned in the document. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not necessarily constitute or imply its endorsement, recommendation, or favoring by MPower or BCG. Apart from any use as permitted under the Copyright Act of Japan, no part may be reproduced in any form. Disclaimer

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ESG x Startup Report: Current State of ESG Effo...

ESG x Startup Report: Current State of ESG Efforts Among Japanese Startups and Learnings From Japanese/International Case Studies

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