Guideline for Constructing Composite Indicators that Measure Circular Economy Performance

Abstract

Composite indicators are modern tools for evaluating, comparing, and measuring the performance of multidimensional concepts such as sustainable development, environmental protection, or circular economy among countries, regions, or cities. The core of composite indicators includes the mathematical relation of individual indicators pertaining to different dimensions of the observed concept. Importantly, composite indicators are constructed by means of various mathematical models, primarily multiple-criteria decision analysis, which allows the selection of adequate individual indicators within a composite indicator. This is followed by the selection of a suitable aggregation model and a careful selection of a system for assigning individual indicator weights. Subjectivity during decision-making should be avoided as much as possible, as it could lead to an imprecisely formed indicator. In addition, this requires a proper previous definition of indicator robustness, which explains the level of coverage of a specific concept, as well as potential restrictions that need to be listed in indicator notes. This paper discusses the key features of measurement using indicators and the application of composite indicators in circular economy. Guidelines are also provided for proper definitions and construction of composite indicators that measure circular economy performance, all for the purpose of improving the system for circular economy performance measurement.