How are countries classified under the new Equity Mechanism for Countries and Territories?

This article describes the methodology we used to classify countries under the new Standards Equity Mechanism. To read more about the Equity Mechanism see details in this article.

How we classified the countries and territories

B Lab ranked each country and territory using five external lists.

• Human Development Index

• Gross National Income 

• Domestic credit to the private sector (% of GDP) 

• Corruption Perception Index

• Social Progress Index

Combining these sources (rather than relying on any one of them) provides a broad coverage of themes — such as education, health, financial wealth, corruption, and business credit — for each country and territory. Together, these reflect the various operational barriers that affect a company’s ability to operate and meet the Standards in each location.

We converted each external list into a decile ranking, meaning each country and territory was given a score of one to ten based on its position in the external list. Next, we calculated an overall decile ranking using the average of the five lists. Finally, we divided the groups as follows.

• The top two deciles are “countries and territories with fewer operational barriers”

• The next four deciles are “countries and territories with some operational barriers”

• The final four deciles are “countries and territories with more operational barriers”

For example, the table below shows how Japan, Brazil, and Uganda score on the five external lists, how we average those scores, and the average decile ranking for the 194 countries and territories in the Equity Mechanism.

We checked our results with stakeholders in each location

Stakeholders from the relevant countries and territories reviewed the initial quantitative results from this methodology. In a small number of cases, their reviews helped us reclassify a country or territory. 

For example, our quantitative results classified Chile as having “fewer operational barriers” by a small margin (meaning companies in Chile would need to meet all applicable sub-requirements). However, we reclassified Chile because many stakeholders felt that “some” barriers was more accurate (meaning those companies can opt out of 10% of applicable sub-requirements). 

This example serves as a reminder that — while quantitative information and external lists are a practical and tangible resource — this process involves an inherent degree of subjectivity and simplification. Great care, and input from local stakeholders, is key to balancing the Equity Mechanism fairly.

B Lab intends to update the list every three years.