What Is the Industry Classification Benchmark (ICB)?
The Industry Classification Benchmark (ICB) is a system for assigning all public companies to appropriate subsectors of specific industries. The system was developed by Dow Jones and the Financial Times Stock Exchange (FTSE) and is recognized globally.
- The ICB classifies every public company by its industry, supersector, sector, and subsector.
- It is one of two classification systems that are adopted by stock exchanges worldwide.
- The system helps investors research stocks and identify competitors.
The benchmark's hierarchy identifies industries, supersectors, sectors, and subsectors. For example, Gap Inc. is assigned to the Clothing & Accessories subsector within the Personal Goods sector, which is under the Personal & Household Goods supersector within the Consumer Goods industry.
Understanding the ICB
Stock exchanges around the world adopt one of two competing classification systems:
- The ICB was developed by Dow Jones in partnership with the Financial Times Stock Exchange (FTSE). The latter is owned by the London Stock Exchange (LSE).
- The Global Industry Classification Standard (GICS) was developed in a partnership between Standard & Poors and Morgan Stanley Capital International.
It’s worth noting that most of the same sector and industry designations exist in both the GICS and the ICB.
Each company is allocated to the subsector that most closely represents the nature of its business, based first and foremost on its primary source of revenue.
The objective of the ICB is to categorize individual companies into subsectors, based on each company's major source of revenue.
How the ICB Works
The ICB is managed by FTSE Russell, a division of the London Stock Exchange. With approximately 100,000 securities classified, it provides a comprehensive source of data along with a categorizing system for investors.
The system categorizes companies and securities across a hierarchy of four tiers. The tiers are divided into 11 industries, 20 super-sectors, 45 sectors, and 173 subsectors.
The first- and second-level industry and super-sector tiers are designed to support investment strategies that depend on such classification. The ICB drills down further at the third- and fourth-level sector, and subsector tiers.
Who Uses ICB
The ICB is adopted by stock exchanges including Euronext, NASDAQ OMX, London Stock Exchange, Taiwan Stock Exchange, Johannesburg Stock Exchange, Borsa Italiana, Singapore Stock Exchange, Athens Stock Exchange, SIX Swiss Exchange, Cyprus Stock Exchange, and Boursa Kuwait.
Together, these exchanges represent more than 65% of the world's market capitalization. The ICB offers investors two levels of information based on time. A weekly database generates product files reflecting all changes made that week on the last business day of the week. A daily database is produced at the end of each business day.
The ICB is a single standard that defines the market. The ICB competes with the Global Industry Classification Standard (GICS) for equities, which was developed in a partnership between Standard & Poors and Morgan Stanley Capital International.
The Toronto Stock Exchange, the Australian Stock Exchange, and the NOREX Alliance are among those that use the GICS standard.
Most of the same sector and industry designations exist in both the GICS and the ICB.