What is a conglomerate?

A conglomerate is a large corporation that owns different companies or business units, often in unrelated industries. These companies operate independently but are controlled by the parent corporation. Typically, multi-industry conglomerates are large and multinational. Examples of conglomerates are Sogo Shosha (Japan), Chaebol (South Korea), business group, corporate houses, Konzern (Germany) etc.

In a conglomerate, one company owns a controlling stake in a number of smaller companies, which conduct business separately. The companies under the conglomerate are entirely different from each other, and there are no synergies between them. Those companies diversify business risk by participating in a number of different markets, i.e., financial diversification. The conglomerate's subsidiaries operate independently of one another, but the subsidiaries' management reports to senior management at the parent company.

Golden Rule regarding the Scope of Assessment for Conglomerates

When assessing a company, EcoVadis first determines whether the company is a conglomerate or not (based on the definition above) via confirmation from several sources.

In general, conglomerates cannot be rated by EcoVadis. Because of the dilution of sustainability issues in their superstructures. An EcoVadis group assessment would not reflect the conglomerate’s sustainability performance accurately given the number of industries, different geographic sites they operate in, and relevant sustainability topics they may impact. Conglomerates, therefore, would require the EcoVadis assessment to be performed at the site, Subsidiary, or division level.

The only exception that allows EcoVadis to assess a conglomerate at a Group level is when more than 51% of the conglomerate’s turnover is generated from activities that fall under the same business field.

The reason for more than 51% is that it is linked with the dominant segment as per certain databases (for example, Bloomberg, S&P, Global industry classification standard, NAICS). 

Additionally, 51% of similar revenue generated by the same activities will not impact the scorecard significantly. Any ISIC in similar divisions usually has similar criteria activation (or relatively close) thus the questionnaire will reflect, in most cases, the majority of the activities of the conglomerate.

What if the company does not satisfy the 51% rule?

If none of the business units or divisions has over 51% of the overall revenue and if the client still wants to be rated at a larger scale, then there are the following scope of assessment options to consider:

1. Choose a different scope of assessment from the ones available
   1. Group¹
   2. Entity
   3. Site
2. Choose a DIVISION² assessment 
   1. A division is a part of a company made up of entities that operate in the same field or type of activity. Each entity within a division is a separate legal entity, which may be owned by the division itself, the main company, or another subsidiary in the structure. Sometimes, a division is just a name (not a Legal Entity Name).
      1. The business activity of the division can be further checked in the “How is my company’s industry (ISIC) defined…”

¹Not applicable at the ultimate parent company of the conglomerate level. 
²Exception made only for conglomerate companies where the Division itself does not have a Legal Entity Name, otherwise it is a not assessable scope. 

What solutions are available to best manage conglomerate assessments?

Organizations should have EcoVadis assess the legal entity that best represents their business relationship with the requesting company.
To help prioritize your company’s assessment, EcoVadis can analyze the inherent risk of particular companies within the conglomerate and identify key business units that we recommend assessing in priority.

The EcoVadis Corporate subscription allows you to centralize multiple assessments on one platform. Please note that currently this subscription is only available for companies that satisfy the 51% rule, more to come in the coming future. 

Contact the EcoVadis Support Team for more information at support.ecovadis.com.