Building block 4: Scope

Definition: Scope defines which entities, financial products or services are subject to ESG disclosure following a regulation or standard.The definition of scope might be based on the legal status (e.g., listed companies), size, impact, sector affiliation, or the type of financial product or service.

Overall recommendation: Transparency on sustainability impacts can only be achieved if companies that represent the substantial share of sustainability impacts fall under the scope of the disclosure regulation or standard. As such, the scope must be based on entities’ impacts, independent of their legal status or size. Hence, we encourage the SEC and ISSB to consider the scope of the firms in the development of these standards in order to enable a large coverage of sustainability data in sectors which are dominated by SMEs. Also, the current proposal for the CSRD does not yet capture a large fraction of the sustainability impacts in certain sectors (e.g., agriculture or land transportation) 25 .

Design choice: The scope of sustainability disclosure standards/regulations should be determined by sustainability impacts (considering firm and sector levels), risks and opportunities.

Standard Evaluation

SEC

IFRS S1 & S2 (by ISSB)

ESRS (by EFRAG) The scope only considers SEC Registrants, meaning an issuer with a class of equity securities registered under the Exchange Act. We recommend determining the scope not only by listing status, but to also consider sustainability impacts (considering firm and sector levels), risks and opportunities.

The scope is not specified, as this will be legislated through the jurisdictions adopting the standards and transposing them to national regulations. We recommend that the ISSB provides suggestions for the scope of the regulations based on sustainability impacts (considering firm and sector levels), risks and opportunities.

The scope includes non-listed firms and SMEs. We welcome the decision to target non-listed firms and SMEs. We recommend to further develop the scope based on sustainability impacts (considering firm and sector levels), risks and opportunities.

Recommendation

Design choice: The scope of sustainability disclosure standards/regulations should consider SMEs’ capacities.

Standard Evaluation

SEC The proposed rule would affect some issuers that are small entities (approx. 1,004 according to the Recommendation

We welcome that the SEC is considering SMEs’ capacities. We recommend targeting SMEs depending on their scope and sector in order to gain a comprehensive picture of the climate impact of their