With assets managed according to environmental, social, and governance (ESG) principles on track to surpass $50 trillion by 2025, it makes sense to examine an often-overlooked business sector that serves this growing market — TIC companies. These are the businesses that engage in testing, inspection, and certification, essentially verifying that the companies that purport to be fulfilling ESG requirements actually are doing so.
The roots of the three largest companies in the field can be traced to the late nineteenth century, when global trade boomed in the wake of steamship technology and a need arose for independent experts to check and verify the quality and quantity of goods being shipped and present an objective, trustworthy measurement.
For competitive and cost reasons, if they have the scale, many companies conduct most or all the TIC function internally. In fact, the in-house TIC market is probably about four times as large as the outsourced market, which is likely about $50 billion a year. But the outsourced market has considerable growth potential.
TIC: Four Major Players
Currently, there are four major players in the TIC market: SGS, Bureau Veritas, Intertek, and Eurofins Scientific.
SGS, a Swiss company founded in 1878, is the largest in the field, with 93,000 people worldwide and a market capitalization of about 20 billion Swiss francs. Bureau Veritas, a French company founded in 1828, is second, with a staff of about 78,000 and a market cap of €11 billion. Third is Intertek, a British company founded in 1885, with about 44,000 people and market cap of £8 billion. Finally, Eurofins, a French company founded in 1987, focused only on life sciences, chemicals, and pharmaceutical until 2021, when it acquired MTS, a comprehensive consumer products TIC company. Eurofins has about 55,000 employees and, by market cap, it is now the second largest TIC company, at about €16 billion.
The Big Four account for between 20% and 40% of the market and have long histories, some extending to the beginnings of the industry. But because the needs of clients are so specialized, the market supports many smaller players. These include Underwriters Laboratories in the U.S. and TUV Rhineland, TUV SUD, and Dekra in Germany. There are many more newer niche players as well.
One important characteristic of the major players is that, perhaps because of their heritage, they are not especially tech oriented. They have IT systems, of course, but the systems are not especially sophisticated, probably because in most of the sectors in which they operate their work does not require them to be very high-tech.
The Role of TIC in ESG
So now to the core question: what is the TIC sector’s role in ESG investing and why does it represent a growth opportunity?
Essentially, TIC has a four-part role. First, in the environmental area, it can define and measure a company’s carbon footprint. Second, it can help companies offset their carbon emissions through carbon credits and then verify those. Third, they can help companies define and disclose all their ESG activities. And, finally, they can help investors verify the ESG claims of companies in which they may invest or have invested in.
Due to regulation, particularly in Europe, and institutional and individual investor demand for ESG investments worldwide, asset managers’ need to verify the ESG claims of the companies whose securities they own is growing. As ESG investing has become a significant and seemingly permanent force, so too has corporate “greenwashing,” or the putting of the best possible spin on ESG claims. Much to the chagrin of investors, some of those claims have turned out to be wildly inflated and, sometimes, totally fictitious. As a result, investors more than ever feel compelled to verify corporate methodologies and results, relying on TIC companies for that service.
The size of the combined market for TIC services to the investment community and to the companies that want to meet the demands of ESG-oriented investors is roughly $1 billion a year, growing at a compound annual rate of about 10% to 15% a year.
With such a built-in bias for growth, the future of the TIC sector over the next several years looks particularly bright.
About Dr. Nelson Chan
Dr. Nelson Chan is founder and President of RAM Consulting Limited. Earlier, he served as Vice President Asia Pacific of the consulting arm of Intertek. Over his 22 years of industry experience, he has developed consumer product safety and quality assurance programs highlighting injury prevention for many well-known companies. Dr. Chan was educated in the U.K. and has worked in many countries, including the U.K., Canada, the U.S, China, and Hong Kong SAR. He holds a doctorate degree in biomedical engineering and is a Professional Chartered Engineer (CEng).
This financial industry article was adapted from the GLG Roundtable “ESG Services Market 2022 Outlook.” If you would like access to events like that or to speak with experts like Dr. Nelson Chan or any of our approximately 1 million industry experts, please contact us.