1. Introduction
2. Data sources
3. Calculation
4. Current RRI, Peak RRI, and RRI Change
5. Back-calculations
6. Methodology updates
1. Introduction¶
The RepRisk Index (RRI) for Countries (Country RRI) quantifies business conduct risks within a country.
The index is based on risk incidents in the RepRisk dataset and was the outcome of a joint research project with the Zurich University of Applied Sciences, co-funded by the Commission for Technology and Innovation, a key instrument of the Swiss federal government’s technology policy.
Updated daily, the RRI gives accurate, dynamic information on business conduct risks and how they impact companies doing business or investing in a specific country. It provides meaningful insights into potential financial and compliance risks such as human rights violations, poor working conditions, corruption, and environmental degradation.
The RRI ranges from zero (lowest) to 100 (highest). The higher the value, the higher the risk exposure:
- 0-24 generally denotes low risk exposure
- 25-49 denotes medium risk exposure
- 50-59 denotes high risk exposure
- 60-74 denotes very high risk exposure
- 75-100 denotes extremely high risk exposure
2. Data sources¶
2.1. RepRisk dataset¶
The RRI draws on the RepRisk dataset - the world’s largest database of risk incidents associated with companies and projects. To gather information on incidents, RepRisk leverages machine learning and curated human analysis to screen a large number of public sources and stakeholders daily. Reports on risk incidents are synthesized based on a strict, rules-based methodology. Read RepRisk’s full methodology.
Each incident in the RepRisk dataset is rated based on severity, reach, and novelty:
- Severity [1, 2, 3] reflects the harshness of the risk incident or criticism; where [3] denotes a very severe risk incident or criticism and [1] denotes low severity.
- Reach [1, 2, 3] of the information source (influence based on readership/circulation as well as by its importance in a specific country); where [3] denotes high reach and [1] denotes low reach.
- Novelty [1, 2] reflects the newness of the issues addressed for the company, i.e., whether it is the first time a company/project is exposed to a specific issue in a certain location; where [2] denotes the first time a company is exposed to this issue and [1] denotes repeated occurrences.
Among these three parameters, the Country RRI uses severity in its calculation.
| Company ID | Story ID | Incident Date | Unsharp Incident | Related Countries | Related Countries Codes | Severity | Reach | Novelty | ENVIRONMENT | SOCIAL | GOVERNANCE |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 71 | 52826 | 2013-07-31 00:00:00 | 0 | United States of America | US | 2 | 1 | 2 | F | F | T |
| 7111 | 61844 | 2013-10-24 00:00:00 | 0 | Unspecified | nan | 2 | 3 | 1 | F | F | T |
| 71 | 7820275 | 2021-03-17 00:00:00 | 0 | United States of America | US | 1 | 2 | 2 | F | T | T |
| 2 | 2481999 | 2020-07-07 00:00:00 | 0 | South Africa | ZA | 2 | 1 | 1 | F | F | T |
| 2 | 41698 | 2012-05-31 00:00:00 | 0 | United States of America | US | 1 | 1 | 2 | T | T | F |
2.2. International Country Risk Guide¶
The Country RRI also draws on the Political Risk Rating (PRR) of the International Country Risk Guide (ICRG). The PRR reports on 12 broad dimensions of political risk, covering both governance and social factors:
- Government Stability
- Socioeconomic Conditions
- Investment Profile
- Internal Conflict
- External Conflict
- Corruption
- Military in Politics
- Religious Tensions
- Law and Order
- Ethnic Tensions
- Democratic Accountability
- Bureaucracy Quality
The ICRG is published on a monthly basis for 140 developed, emerging, and frontier markets.
2.3. Worldwide Governance Indicators¶
For smaller countries and territories not covered by the ICRG, the Country RRI uses the Worldwide Governance Indicators (WGI). The WGI are based on a World Bank research program and compile information from over 30 data sources that report the views and experiences of citizens, entrepreneurs, and experts in the public, private, and NGO sectors from around the world, on the quality of various aspects of governance. Specifically, the WGI report on six dimensions of governance:
- Voice and Accountability
- Political Stability and Absence of Violence
- Government Effectiveness
- Regulatory Quality
- Rule of Law
- Control of Corruption
The WGI are published on a yearly basis.
3. Calculation¶
The Country RRI combines a bottom-up with a top-down approach to business conduct risk assessment:
$$ \text{RRI}_{t} = \frac{\text{Incident Index}_{t} + \text{Scaled PRR}_{t}}{2} $$
- Incident Index [0-100]:
- Bottom-up aggregation of the business conduct risk incidents that take place and/or have impacts in the country and are associated with companies or projects.
- Updated daily based on new risk incidents.
- Scaled PRR [0-100]:
- Top-down measure of political and governance risks calculated from the PRR of the ICRG.
- Updated monthly based on the ICRG’s republication.
- Note: For smaller countries or territories not covered by the ICRG, the Country RRI uses the WGI as a measure of political and governance risk (also scaled [0, 100]). The WGI are published annually by the World Bank.
3.1. Incident Index¶
The Incident Index is calculated as the normalized average severity of risk incidents from the last two years within a country. The average is time-weighted – i.e., newer incidents receive more weight in the calculation.
To ensure an accurate risk quantification, the average severity is calculated only if a minimum of ten incidents took place and/or had impacts in the country in the past 730 days. For countries below the threshold, the Incident Index will decay at a constant rate of $\frac{100}{730}$ per day. Hence, the decay from 100 to 0 would take 730 days.
An example of the calculation for a country A with 11 incidents in two years is illustrated below:
| Company ID | Story ID | Incident Date | Related Countries | Related Countries Codes | Severity | Severity Weight | Time Weight as of 2020-12-31 | Severity Weight x Time Weight |
|---|---|---|---|---|---|---|---|---|
| 2 | 392372 | 2019-01-15 00:00:00 | A | AA | 2 | 16 | 0.12 | 1.92 |
| 71 | 431010 | 2019-03-05 00:00:00 | A | AA | 2 | 16 | 0.17 | 2.72 |
| 2 | 899661 | 2019-08-02 00:00:00 | A | AA | 2 | 16 | 0.33 | 5.28 |
| 71 | 968277 | 2019-09-26 00:00:00 | A | AA | 1 | 8 | 0.39 | 3.12 |
| 71 | 1444705 | 2020-01-09 00:00:00 | A | AA | 2 | 16 | 0.5 | 8 |
| 71 | 1523390 | 2020-01-24 00:00:00 | A | AA | 1 | 8 | 0.51 | 4.08 |
| 71 | 1535465 | 2020-01-27 00:00:00 | A | AA | 1 | 8 | 0.52 | 4.16 |
| 71 | 1909905 | 2020-04-01 00:00:00 | A | AA | 1 | 8 | 0.58 | 4.64 |
| 71 | 1993725 | 2020-04-15 00:00:00 | A | AA | 2 | 16 | 0.6 | 9.6 |
| 71 | 2327057 | 2020-06-08 00:00:00 | A | AA | 1 | 8 | 0.65 | 5.2 |
| 71 | 2889829 | 2020-09-20 00:00:00 | A | AA | 2 | 16 | 1 | 16 |
| Sum | 5.37 | 64.72 | ||||||
| X := Average weighted severity as of 2020-12-31 | ||||||||
| 12.05 |
Assuming the average of X across countries = 14.05 and the deviation of X across countries = 2,
$$\text{Incident Index} = 37.5 + 12.5 * \frac{12.05 - 14.05}{2} = 25$$
- Note: The exact time-weight for an incident with the time difference (in days) between its publication date of the risk incident and the RRI calculation date is as described below:
3.2. Scaled PRR¶
The PRR of the ICRG ranges from 0 (highest risk) to 100 (lowest risk). The higher the value, the lower the political risk. The rating is thus inversed to align its scale with that of the RRI. The resulting Scaled PRR ranges from 0 (lowest risk) to 100 (highest risk).
3.3 Scaled WGI¶
For smaller countries or territories not covered by the ICRG for PRR, the Country RRI uses the WGI instead of PRR.
The Scaled WGI ranges from 0 (lowest risk) to 100 (highest risk) and depends on the average of the six indicators. Each indicator ranges from -2.5 to 2.5; the higher the values, the better governance outcomes. The Scaled WGI, as a measure of governance risk, therefore, increases with the decreasing average of the WGI.
4. Current RRI, Peak RRI, and RRI Change¶
The RRI, or "Current RRI", reflects the current level of media and stakeholder attention business conduct issues are being given in a certain country.
The Peak RRI is equal to the highest level of the RRI over the last two years – a measure of the overall business conduct risk exposure of companies doing business or investing in the country.
The RRI Change or Trend shows the increase or decrease of the RRI within the past 30 days.
5. Back-calculations¶
To ensure an optimal risk estimation, the RRI is based on all data points currently available in the RepRisk dataset. Back-calculations may thus be performed in case new, previously not considered, incidents are added. For example, the RRI of country $A$ on day $t$ will first be calculated on day $t$ but may be recalculated later, if new incidents impacting the initial calculation are added.
6. Methodology updates¶
Starting in 2020, back-calculations are no longer performed for annual WGI updates. The WGI updates for the year 2019, released in 2020, were thus applied to the RRI values after the 2020 release date and were no longer applied retrospectively to the historical values going back to January 1, 2019.
In 2021, the ICRG was added as a monthly data source for the Country RRI. The PRR of the ICRG replaced the WGI as a measure of political and governance risk for 140 developed, emerging, and frontier markets. Replacing the yearly-updated WGI with monthly-updated data increased the RRI's responsiveness to political risk events such as protests, armed conflicts, and corruption. To ensure a smooth transition, the ICRG was introduced gradually over a three-month period from September 6 to December 6, 2021, i.e., the historical Country RRI values from:
- before September 6, 2021 are based on the WGI;
- between September 6 and December 6, 2021 are based on a weighted average of the WGI and ICRG (the ICRG weight gradually increases from 0% to 100% during this time period);
- after December 6, 2021 are based on the ICRG.
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