Defining an industry and grouping companies

In short

• An industry = companies selling similar products or services, from the customer's perspective. Hard parts: substitutes, multi-industry companies, geography, and business models that keep changing.
• Legacy schemes (SIC, NACE, ISIC) were government-run, country-specific, rarely updated and grouped firms by production (a supply approach). Commercial schemes (GICS, ICB, TRBC) are global, reviewed at least annually and group firms by what they sell (a demand approach).
• GICS, ICB and TRBC are strictly hierarchical: each company sits in one lowest-tier group, which fixes all its higher tiers.
• Multi-segment companies go into one group, their largest business: a line with ≥ 60% of revenue decides; otherwise a line with > 50% of revenue, profits or assets; otherwise discretion. Strict taxonomies have no separate multi-industry category.
• Four limitations: groupings that are too broad or too narrow (business-model variations, substitutes), multi-product companies, geography, and changes over time that hurt comparability.
• Other groupings: geography (by domicile, listing or headquarters, not revenue mix), cyclical vs defensive, statistical similarities, and ESG characteristics.