What is a composite indicator?

An indicator can be seen as something that provides a clue to a matter of larger significance or makes perceptible a trend or phenomenon that is not immediately detectable. An indicator's main defining characteristics are that it quantifies and simplifies information in a manner that promotes the understanding of environmental problems, to both decision-makers and the public. Above all, an indicator must be practical and realistic, given the many constraints faced by those implementing and monitoring projects. They are often a compromise between scientific accuracy and the information available at a reasonable cost.

A mathematical combination (or aggregation as it is termed) of a set of indicators is most often called an "index" or a "composite indicator": Composite indicators are based on sub-indicators that have no common meaningful unit of measurement and there is no obvious way of weighting these sub-indicators.

Synthetically the pros and cons of composite indicators could be summarised as follows:  

Pros

  • Composite indicators can be used to summarise complex or multi-dimensional issues in view of supporting decision-makers.

  • Composite indicators provide the big picture. They can be easier to interpret than trying to find a trend in many separate indicators. They facilitate the task of ranking countries on complex issues.

  • Composite indicators can help attracting public interest by providing a summary figure with which to compare the performance across Countries and their progress over time.

  • Composite indicators could help to reduce the size of a list of indicators or to include more information within the existing size limit

Cons

  • Composite indicators may send misleading, non-robust policy messages if they are poorly constructed or misinterpreted. Sensitivity analysis can be used to test composite indicators for robustness.

  • The simple “big picture” results which composite indicators show may invite politicians to draw simplistic policy conclusions. Composite indicators should be used in combination with the sub-indicators to draw sophisticated policy conclusions.

  • The construction of composite indicators involves stages where judgement has to be made: the selection of sub-indicators, choice of model, weighting indicators and treatment of missing values etc. These judgements should be transparent and based on sound statistical principles.

  • There could be more scope for Member States about composite indicators than on individual indicators. The selection of sub-indicators and weights could be the target of political challenge