The scope refers to the legal entity or entities of the company that will be undergoing an EcoVadis assessment. The possible assessment scopes are:
- A GROUP assessment is considered as a company (legal entity) with subsidiaries or
- A subsidiary* (legal entity) which has subsidiaries (part of a group) and which has a higher parent company;
- When the GROUP assessment is done, all its national and foreign subsidiaries will be covered in the EcoVadis assessment.
- An ENTITY assessment is considered as a company (legal entity) with no subsidiaries. It can be a mono-site company, or a standalone company with 1 or more sites that do not have different Legal Entity Names (LEN), or
- a subsidiary of a group with no other subsidiaries below it.
- A site or facility of a legal entity. This site does not have an individual Legal Entity Name (LEN), and the EcoVadis LEN uses a suffix: (Site of XYZ) for these types of sites. Additionally, a Site will use the LEN of its “parent” entity, with the (Site of XYZ) suffix in its EcoVadis Legal Entity name.
A subsidiary is a company (with Legal Entity Name/ business registration number) that belongs to another company, which is usually referred to as the parent company or the holding company.
Criteria considered for a scope to be assessable
For a scope to be considered for assessment, two main criteria need to be considered:
- There must be a relevant level of Assessment Scope in terms of sustainability risks and this depends on the company’s activity.
- It must have a legal entity name or operate under the direct parent legal entity name.
The legal entity name (LEN) is the name under which a company is legally registered and operates in the country of operation.
EcoVadis’ recommendation is to assess the scope that is most relevant to the relationship between your company and your trading partners. This allows for a more targeted sustainability risk management and performance evaluation as many sustainability impacts (for example environmental, labour and human rights) are tied operationally to specific sites or a group of sites within a country or region.
For this reason, assessments done at the entity or site level provide a much better representation of best practices and potential areas of improvement. They also allow for better collaboration between local teams on specific corrective actions when needed. In instances where there is a group-wide sustainability management program, site-level assessments provide clearer visibility and management of the implementation of the program throughout the organization.
How are joint ventures considered in an assessment?
If a company is a joint venture, the minimum percentage of shareholding to be considered as a subsidiary is at least 50%.
Types of assessment scopes not allowed in EcoVadis
There are certain types of organizational and operational structures that are NOT allowed:
- Conglomerates (e.g. groups offering a variety of divisions that differ in terms of activity). Exceptions are explained here.
- Business Units or Divisions without any legal entity name;
- Purely commercial/sales entities in manufacturing groups (e.g. sales offices, trading agents, marketing entities).*1
- Pure “financial investment" holdings (e.g. investment funds with a legal entity name)*2
- Product names, commercial brands and brand names;
- Non-profits, NGOs*3, academic institutions/universities or state-owned/governmental organizations (except those that have a corresponding legal entity name).
*1 Commercial/sales entities:
A pure commercial entity is a subsidiary involved in non-operational activities including (but not limited to): trading, merchandising, sales. Non-operational activities are activities significantly different from that of the company's main activity and generally pose a non-significant sustainability risk.
As per EcoVadis methodology, sales/commercial entities, when part of a larger group that does manufacturing, cannot be assessed as a standalone entity.* This is because the sustainability risks associated with their specific activities are much lower than the actual manufacturing activities of the group. In other words, a manufacturing company’s pure commercial entity does not pose a real sustainability risk compared to the risk associated with the group.
EcoVadis has chosen to use this methodology because to do otherwise would exclude all sustainability risks presented by the group’s activities and create a risk of misinterpretation of the performance by customers.
Please note that the performance of all the subsidiaries will be covered in any group assessment. In other words, the site risks pertaining to the commercial/sales entity will be covered in the questionnaire related to the manufacturing activity, as these assessments cover a wider range of questions that reflect both manufacturing and sales activities. This subset of questions would be different if the sites were not in fact commercial/sales entities.
* We can assess distributors/wholesalers at the subsidiary level if they procure their goods from a third party (regardless of whether they ALSO sell goods produced within the company group), as this procurement brings new sustainability-related risks.
We can assess holdings when they are the ultimate Legal Entity Name above the group operations.
In cases where an NGO does have a Legal Entity Name (LEN), a commercial activity (having associated sustainability risk) and the company is generating profit, we can proceed with the assessment.