ESG – Cyber risk


they are working to get an employee’s login details. The security focus has switched from protecting the network to authentication and securing devices. This is why there has been a rise in reported instances of hacking during lockdown as more people work remotely.


“The increase of digitalisation in all areas of business has heightened the cyber risk,” Burger says. “A lot of companies rely on their digital offering to get products and services to their customers, which puts them in a more susceptible position.”


The level of successful attacks is rising thanks to the Internet of Things, says Peter van der Werf, director of active ownership at Robeco. “Many people are aware that their computer or phone can be hacked, but what about other devices that are increasingly being connected to the internet, such as smart TVs, fridges and music speakers? This growth of devices, at home and in offices, that are now online is rapidly outpacing our ability to ensure that such devices are properly policed and protected,” he adds. Indeed, our homes can be controlled by our phones, while steering, braking, lighting and the warning systems in new cars are controlled by computers, known as a Controller Area Network (CAN). New advancements have created new threats. Consumer magazine Which? claims that it hacked into the CAN of two car models, which not only means that criminals can use the system to access the information in your phone but, worse, put your safety at risk. “Cybersecurity is an issue that is front and centre for inves- tors,” Childe says, especially as the world is moving more towards a cloud computing model. If one of those cloud hosts is breached it could have a systemic impact across the board. “So it is increasingly an issue that investors look at,” she adds.


The opportunity For those looking not just to cut cyber risk in their portfolio, but to gain exposure to the growing threat, investing in finan- cial technology is an obvious place to start. There are various estimates on future spend in this market, but one estimate used in research by one asset manager puts the value of the cybersecurity software market at more than $80bn (£66bn) by 2024, up from $50bn (£41bn) in 2018, which sug- gests that the market is growing by 8.9% a year. Rames explains that the world is migrating towards a concept where an employee can be anywhere in the world and log onto


Sponsored by


Cyber risk is a business strategy risk at the end of the day.


Anu Rames, BNP Paribas Asset Management


the system, those offering encryption services will benefit. “You are authenticating the device and the person. “We are going to see a lot more connected devices enter the network,” she adds. “If you are looking at cybersecurity as a theme, networking stands to benefit. You need a provider who provides authentication.” There are alternative sectors for those looking to gain expo- sure, such as insurance, payment companies and consultancies. The cybersecurity-linked technology services and consultancy market is expected to be worth $109bn (£89.4bn) in the next four years, up from $65bn (£53.3bn) in 2018. A report from S&P published in August 2019, stated that the cyber risk insurance market will expand faster than most tradi- tional lines and could reach $8bn (£6.5bn) of gross written pre- miums by 2022. Two years ago, the market was worth $5bn (£4.1bn) The cybersecurity market is huge and with technological advances and increasing digitalisation, the threat, and opportunity, is likely to always be with us. So investors not only have to be aware of the changing risks here, but also how to gain exposure to the upside of such a major long-term theme.


Issue 93 | May 2020 | portfolio institutional | 37


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