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World Economics ESG Methodology

Updated: March 30, 2022

ESG Index

The World Economics ESG Index is a composite index derived from the average of the Environmental, Social and Governance Impact Indexes defined below. The higher the World Economics ESG Index, the more resilience a country is showing to long-term, material environmental, social and governance (ESG) risk or actively working to reduce the impact of these factors.

Components:

  • World Economics Environmental Factors Index
  • World Economics Social Factors Index
  • World Economics Governance Factors Index

The index has a scale from 0-100 where 100 indicates excellent ESG credentials and 0 suggests very poor combined scores. All countries are ranked by the index score and graded against their performance relative to the other countries in the listing.



Environmental Impact Index

The World Economics Environmental Impact Index focus of each country’s total carbon and methane emissions. Source data from Friedlingstein et al’s 2020 Global Carbon Atlas was obtained in an emissions volume per capita format. UN Population data was combined with emissions data to project total carbon and methane emissions per country. The resulting total Carbon and Methane data has been indexed on a scale of 0-100 by using the standard deviation from the mean for each country. The implied Indexes are then averaged to calculate a total Environmental Impact Index which focuses on each countries emissions.

Components:

  • Total Carbon Emissions
  • Total Methane Emissions

The Environmental Impact Index is based on a scale of 0-100 where 0 indicated very high emissions (very bad environmental impact) levels and 100 = very low emissions levels. All countries are ranked relative to each other to create global and regional rankings.



Social Impact Index

The World Economics Social Impact Index weights multiple key social indicators covering Health (45%), Education (25%) and Employment (30%).

World Economics uses United Nations HID and World Bank data to create proxy indexes for Health, Education and Employment. These Indexes are spread on a scale of 0-100 using the standard deviation to the mean so that each country can be relatively compared.

Components:

  • Life expectancy
  • Population in Tertiary Education
  • Government spend on Education as a proportion of GDP
  • Employment to population ratio

The resulting Social Factors Index is used to rank each country based on the highest scoring social indicators where 100 = Excellent and 0 = Unacceptable on a social level.



Governance Impact Index

World Economics has gathered together key indicators to monitor country governance. They indicators included are Perceived Corruption Levels, application of Rule of Law, Media/Press Freedom and the Political Rights of citizens.

Underlying data is obtained from Transparency International, World Bank, RSF and Freedom House respectively.

In keeping with other indexes the data is transformed into a scale of 0-100 to gauge relative performance with other countries.

The Resulting World Economics Governance Index allows each country to be compared for good governance with an index score of 100 to 0 which would indicate a repressive totalitarian state.



Rankings and Grades

All World Economics indexes are on a scale of 0 – 100. Zero indicates very poor performance and 100 indicates ‘as good as it gets’ conditions. With each index being on the same scale and each country being scored relative to other countries using the standard deviation from the mean. Using the resulting indexes, it is possible to rank each Index and attribute a grade to each index/country combination.

Grades are assigned in a consistent manner of splitting each dataset into quartiles which allows a simple A-D rating.

  • Grade A: As good as it gets,
  • Grade B: Moderate performance
  • Grade C: Unsatisfactory / Poor
  • Grade D: Unacceptable / Awful

The labels assigned to each grade are altered to reflect the context of the data where needed.