Chapter 08 · Finance, data & evidenceData, Technology & Verification Systems
Composite index
Definition
A composite index (or composite indicator) is formed when individual indicators are compiled into a single index on the basis of an underlying model of the multi-dimensional concept being measured — for example the Human Development Index combining health, education and income. The OECD–JRC Handbook on Constructing Composite Indicators sets out the standard methodology: theoretical framework, data selection, imputation, normalisation, weighting, aggregation and robustness testing.
References
Supports definition and framing.
Overview
What it means
It trades detail for communicability — one number standing in for many dimensions.
How it is used
Sustainability performance, ESG ratings, resilience scores and SDG progress are commonly expressed through composite indices; the OECD cautions that poorly constructed composites can send misleading policy messages.
Why it matters
Composite indices drive rankings, investment and policy attention, so their construction choices carry real consequences.