What Is ESG Scope Divergence and Why Does It Matter?

Scope divergence — the phenomenon where different ESG rating agencies include or exclude different factors from their assessments — is one of the three primary explanations for why the same company can receive starkly different ESG scores from different providers. Two providers may both claim to measure "environmental performance," but if one includes a company's supply chain land-use footprint while the other does not, they are measuring fundamentally different things. Understanding which ESG categories are most subject to scope divergence helps investors identify where their chosen rating provider may miss important ESG dimensions — and where a second provider's data would be most valuable.

Quick definition: ESG scope divergence refers to differences in the breadth of factors that ESG rating agencies include in their assessments. When Provider A includes factor X in its assessment and Provider B does not, their ratings will diverge for any company where factor X is significant — not because they disagree about X's value, but because only one of them measures it at all.

Key takeaways

• Scope divergence accounts for approximately 38% of total ESG rating divergence, based on Berg, Kölbel, and Rigobon's decomposition.
• The most contested scope areas — where providers most frequently differ on whether to include a factor — are: political contributions and lobbying, supply chain environmental impact, tax transparency, animal welfare, biodiversity and land use, and product quality and safety.
• Scope choices reflect underlying decisions about what ESG "is for" — financial materiality (only include factors affecting financial value) versus stakeholder impact (include all factors with significant social or environmental effects).
• SASB's industry-specific materiality standards represent one influential answer to the scope question: include the factors that are financially material for each industry. But other frameworks include factors that may be ethically significant without being immediately financially material.
• Scope gaps in an investor's chosen ESG rating system can create ESG blind spots — exposing portfolios to risks or impacts that the rating provider doesn't assess.

The Most Significant Scope Disagreements

Research has identified specific categories where providers most frequently differ on inclusion:

Political contributions and lobbying: Some ESG providers include a company's political contributions and lobbying activities as governance factors — on the theory that companies that lobby to weaken environmental regulations or social protections are creating governance risk and negative societal impact. Others exclude this category, either because they consider it outside the scope of traditional governance assessment or because they view political participation as a protected activity. Companies with significant lobbying activities (pharmaceutical, energy, financial sectors) can receive very different scores depending on whether this factor is included.

Supply chain environmental and social impact: A company's direct operations may have relatively modest environmental and social footprints, but its supply chain may create significant harm — deforestation from agricultural commodity sourcing, forced labor in tier-2 or tier-3 suppliers, excessive water use in water-scarce regions. Providers that include supply chain scope 3 environmental impacts and supply chain labor conditions in their assessments will rate resource-intensive consumer companies very differently from providers that assess only direct operations.

Product impact: Some providers include an assessment of whether a company's products have negative societal effects (ultra-processed food contributing to obesity, payday lending with predatory terms, fast fashion with overconsumption impacts) as ESG factors. Others assess only how a company manages its operations, not the social effects of what it sells. Scope divergence on product impact significantly affects how consumer goods, food and beverage, and financial services companies are rated.

Tax transparency and behavior: Tax avoidance strategies — profit shifting, use of tax havens, aggressive transfer pricing — are assessed as governance factors by some providers and excluded by others. Providers that include tax behavior as an ESG factor will rate multinational technology and pharmaceutical companies differently from providers that assess governance only through traditional board structure and compensation criteria.

Animal welfare: Some ESG providers assess how companies treat animals in their supply chains — livestock welfare standards in food companies, animal testing practices in pharmaceutical and cosmetics companies. Others exclude animal welfare as outside their ESG scope. For food producers, pharmaceutical companies, and cosmetics brands, this inclusion/exclusion creates significant score differences.

Biodiversity and nature: Assessment of corporate impacts on biodiversity and natural ecosystems (beyond carbon emissions) is a growing ESG scope category. Companies with significant land use, water use, or ocean impact receive different scores depending on whether providers include biodiversity as an assessed factor. The TNFD framework (launched 2023) is pushing for broader biodiversity disclosure, which may reduce this scope gap over time.

ESG scope categories comparison

Why Scope Choices Reflect Deeper Disagreements

Scope divergence is not random variation — it reflects systematic differences in the underlying conceptual framework that ESG providers use:

Financial materiality framework: Providers using a pure financial-materiality framework (like SASB-aligned approaches) include factors that affect a company's financial value. Political contributions are borderline — they may affect regulatory risk but are often excluded as they do not directly affect operating performance. This framework produces narrower scope.

Impact materiality framework: Providers using an impact-materiality framework (like GRI-aligned approaches) include factors based on the company's effect on the world, not only on the company's financial value. Product harm, supply chain labor conditions, and political lobbying may be included because they reflect the company's social impact regardless of financial implications. This framework produces wider scope.

Stakeholder capitalism orientation: Providers with a European SRI heritage (like ISS ESG's legacy from Oekom Research) may include factors reflecting normative stakeholder obligations — such as animal welfare or community impact — that are less common in financially-oriented US frameworks.

The Scope Gap for Investors

Scope divergence creates practical ESG blind spots for investors who rely on a single provider:

• A fund using a provider that excludes supply chain scope 3 may hold companies with significant deforestation-linked supply chains without any ESG signal
• A fund using a provider that excludes political lobbying may hold companies that actively lobby against climate regulation — creating a values misalignment invisible in the rating
• A fund using a provider that excludes product impact may hold companies whose products cause significant social harm not reflected in their operational ESG scores

Identifying which scope categories your chosen provider excludes — and deciding whether those categories matter for your investment objectives — is a practical step in evaluating ESG rating suitability.

Real-world examples

Tobacco sector scope treatment: Most ESG providers include cigarette companies in their assessments despite the product harm, relying on operational ESG scores (how the company manages its workforce, environment, and governance). Providers that include product harm as an ESG category score tobacco companies more negatively. This scope choice, combined with the sin-stock debate, means tobacco company ESG scores vary more across providers than most other sectors.

Amazon's supply chain labor scope: Amazon's supply chain labor conditions — warehouse safety, independent contractor labor standards, last-mile delivery worker conditions — are assessed by some providers as relevant ESG factors while others assess only Amazon's directly employed workforce using conventional occupational safety metrics. The scope choice has material implications for Amazon's social score and overall ESG rating.

Chemical company supply chain scope 3: A specialty chemical company may have low direct (scope 1 and 2) emissions but high scope 3 emissions from the downstream use of its products by industrial customers. Providers that include scope 3 in environmental scope rate chemical companies with high downstream emissions impact differently from those assessing only scope 1 and 2. This is increasingly relevant as CSRD requires scope 3 disclosure.

Common mistakes

Assuming that a "comprehensive" ESG score actually is comprehensive: All ESG ratings have scope limitations — there is no ESG rating that measures everything relevant. Investors who rely on a single "comprehensive" ESG score without understanding its scope may have false confidence in their ESG coverage.

Treating scope exclusions as evidence that excluded factors don't matter: A rating provider's decision not to measure political lobbying or product impact is a methodological choice, not a statement that these factors are irrelevant. Investors who care about these factors need to assess them separately.

Ignoring the evolution of ESG scope: ESG scope is expanding over time — biodiversity, nature, tax transparency, and product impact have all moved from contested inclusions to mainstream assessment categories over the past decade. Investors should expect the scope of what ESG ratings measure to continue expanding, potentially changing the relative ratings of companies that are currently well-rated.

FAQ

Should ESG ratings include a company's political activities?

This is one of the most contested scope questions. Political contributions and lobbying create governance risk (potential regulatory capture), reputation risk (association with unpopular political positions), and — for climate-concerned investors — policy obstruction risk. The argument against inclusion is that political participation is a protected activity and that ESG ratings should not be political judgments. Both positions have merit; the right answer depends on the investor's objectives and values.

Why don't all ESG providers include supply chain scope 3?

Supply chain scope 3 emissions data is difficult to collect, often estimated rather than measured, and involves assumptions about attribution that are methodologically contested. Providers that include scope 3 are measuring a noisier signal than providers that focus on the more reliable scope 1 and 2 data. As CSRD requires more scope 3 disclosure and data quality improves, more providers are likely to incorporate scope 3 into their assessments.

How does scope divergence interact with industry materiality?

Industry materiality frameworks (like SASB) are partly an answer to scope divergence — they specify which factors are material for which industries, reducing the scope decisions that providers need to make independently. However, SASB covers only financially material factors; providers that want to include impact-material factors must go beyond SASB's scope in ways that create divergence.

Will CSRD reduce scope divergence?

CSRD's double materiality framework requires companies to disclose both financially material and impact-material information — providing richer data for both financial-materiality-focused and impact-materiality-focused providers. This expanded disclosure may reduce scope gaps caused by data unavailability. However, providers that choose not to include certain impact-material factors in their assessments (because they consider them outside their scope) will continue to diverge even with better data available.

How should investors address ESG scope gaps?

Practical approaches: (1) use multiple ESG data providers, selecting providers with different scope orientations (MSCI for financial materiality, a GRI-aligned provider for impact materiality); (2) supplement ESG scores with specific factor-level data on the scope categories most important for the investor's objectives; (3) use NGO research and specialist reports to address specific scope gaps (deforestation, tax, lobbying) not covered by primary ESG providers.

Related concepts

• Rating Disagreements
• Weight Divergence
• Materiality Concept
• Double Materiality
• Using Multiple Raters
• ESG Glossary

Summary

Scope divergence — differences in what ESG rating providers include in their assessments — accounts for approximately 38% of total ESG rating divergence. The most significant contested scope areas are political lobbying, supply chain environmental and social impacts, product harm, tax behavior, animal welfare, and biodiversity. Scope choices reflect deeper conceptual decisions about whether ESG ratings should focus on financial materiality (narrower scope) or stakeholder impact (wider scope). Investors relying on a single provider face blind spots in categories that provider does not assess. The practical response is to understand the scope of one's chosen provider, identify which contested categories are relevant for one's investment objectives, and supplement primary ESG scores with additional data for the most important scope gaps.

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