ESG – Cyber risk
Shoplifting is an occupational hazard for shopkeepers. Retail- ers invest in trying to stop it and, if that fails, are insured against any such losses. Yet in December 2013, US retail giant Target suffered a theft that has cost it hundreds of millions of dollars, despite the thieves not being in any of its more than 1,800 superstores at the time. These were not your typical shoplifters. They did not take elec- trical goods or stuff bottles of whiskey inside their coats. Instead, they stole the debit and credit card details of up to 40 million customers from the retailer’s database. Four years later, Target paid $18.5m (£15.1m) to settle a lawsuit brought by those affected, while the total cost of the incident has to date exceeded $200m (£163.3m). A $39m (£31.8m) insurance pay- ment has provided little comfort.
Unauthorised access to the online networks of companies and organisations, commonly known as hacking, is a growing threat to investors. Indeed, Target’s share price slumped 11% in the weeks following the attack, while earnings for that quarter plummeted by 46%, year-on-year. So it’s not only warmer temperatures and rising sea levels that could cost businesses billions of pounds in the coming years. Increasing digitalisation is making companies more efficient but has introduced huge risks that investors need to factor into their decision making.
Indeed, the World Economic Forum has named cybersecurity among the world’s top five business risks, while Microsoft’s chief executive, Satya Nadella, has described it as the challenge of our age, committing $1bn (£826.1m) a year to tackling the problem.
It’s not just about money
The attraction to hacking is that it carries lower risk than burst- ing through the doors of HSBC carrying a sawn-off shotgun. Yet, while the rewards could be higher, money is not the only motivation. “Cybercrime is not only about stealing information,” says Ian Burger, head of responsible investment at Newton Investment Management.
There is more to hacking than selling information on the dark web. “Cybercrime envelops an umbrella of issues,” says Marga- ret Childe, head of Canada for ESG research and integration at Manulife Investment Management. “It can be anything from system failures to business disruption. There can be many rea- sons why a cyberattack occurs.”
Whatever the motivation, hacking can be expensive. In 2015, cybercrime cost companies around the world $3trn (£2.4trn), Cybersecurity Ventures says, a figure it predicts could double by 2021.
Hacking is the ultimate David v Goliath contest, but it is investors who could be knocked out if their portfolio companies’ digital defences are not robust enough. Mark Dunne reports.
34 | portfolio institutional May 2020 | issue 93
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