Methodology

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The Spectrum Index is a robust analytical tool crafted to offer insights into three critical dimensions: economy, ESG, and freedom. By employing a weighted average approach, the index aims to provide a balanced view, ensuring each dimension is adequately represented.

Foundation of the Index: The Three Pillars

• Economy Pillar
  • This pillar evaluates the economic health, performance, and potential of a given entity. Metrics might include GDP growth, unemployment rates, fiscal policies, and trade balances. An in-depth analysis of economic indicators helps ascertain the financial strength and stability. Resource reports included in this pillar are; Economic Complexity Index, Global Competitiveness Yearbook, Global Innovation Index, Logistic Performance Index, Foreign Direct Investment (FDI) net inflows, % GDP, GDP per Capita, and GDP per Unit of Energy Use.

• ESG (Environmental, Social, and Governance) Pillar
  • A multifaceted pillar, ESG breaks down further into three sub-components: environment, focusing on ecological impacts, and sustainability. Metrics encompass carbon emissions, conservation initiatives, water usage efficiency, and more. Secondly, social factors gauge the societal responsibilities and impacts of the entity. It includes assessments of labour practices, community engagement, social equity, and other relevant factors. Lastly, governance that examines the governance structures in place, ensuring transparency, ethical operations, and stakeholder interests are upheld. This includes aspects like corporate governance, ethical business practices, and stakeholder engagement metrics. Resource reports included in this pillar are; Environmental Performance Index, Ecological Threat Report, QS World University Rankings, Trends in International Mathematics and Science Study, Human Development Index, Legatum Prosperity Index, Travel & Tourism Development Index, Worldwide Governance Indicator, Corruption Perception Index, Bertelsmann Transformation Index, and ESG Global Rating Tracker.

• Freedom Pillar
  • This dimension assesses the degree of freedom, rights, and liberties within the entity. It might include evaluations of freedom of expression, civil liberties, political rights, and overall democratic practices. Resource reports included in this pillar are; Index of Economic Freedom, Press Freedom, Freedom House, Global Gender Gap Report, Women, Business and law, Global Peace Index, Global Terrorism Index, and Safety Perceptions Index.

Normalisation & Rescaling of Source Indicators

Normalisation of indices is a statistical method used to rescale the values of indicators to a standard range. The Spectrum Index uses a scale 0 to 100. This process is crucial for removing units and enabling the comparison of diverse variables on a common scale. In normalisation, each original data point is adjusted according to a mathematical formula that transforms the indicator values, maintaining the relative distances between them but representing them on a simplified, standardised scale. This often involves subtracting the minimum value of the dataset from each data point, then dividing by the range of the dataset and finally, multiplying by 100. Normalisation facilitates clearer and more meaningful comparisons and aggregations of data in index construction, aiding in the analysis and interpretation of the indices.

Balanced Average Approach

To compute the overall Spectrum Index score, each of the three pillars is given a specific weightage. This ensures that the final score is a balanced representation of all three dimensions. The use of a weighted average method guarantees that even if one pillar has a higher number of metrics or resources than another, it doesn't unduly influence the overall score.

For the ESG pillar, a similar weighted average approach is employed for its three sub-components. Each sub-pillar (environment, social, governance) receives a weight, and their combined score determines the overall ESG score. This level of granularity ensures that the ESG score truly reflects the blend of its three core areas, without any single component overshadowing the others.

One of the primary objectives behind the Spectrum Index methodology is to ensure an equal distribution across the three main pillars. By doing so, the index ensures that the score isn't skewed or biassed toward any particular dimension. This equal distribution principle ensures fairness, regardless of the number of resources or metrics that might exist under a specific pillar.