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Cybersecurity is not just moving up the agenda for investors and their managers: companies also are increasingly viewing it as a business and operational risk.
“On the (governance) front, cybersecurity has become a key risk that senior management and boards are paying close attention to,” said Maykala Hariharan, Singapore-based senior consultant at Mercer Sentinel. She said it is no longer viewed as simply a technology-related risk but as a business risk, “as cyberattacks can have significant financial implications on a company’s bottom line. This is particularly true of financial services companies, where large volumes of data are being stored at the firms and also at external service providers such as custodians” or brokers, she said.
A number of elements are helping to focus company executives’ minds on the topic. “The impact on a portfolio (or) company can be multi-fold – loss of investor assets, reputational damage, litigation from investors and regulatory sanctions,” said Ms. Hariharan.
Regulation is upping the ante for businesses. “Regulators are also increasing their focus in this area – within the financial sector, we count 52 controversies that actively affect the rating of almost 40 companies, more than half of which are banks,” said Gaia Mazzucchelli, London-based research analyst at MSCI ESG Research.
She said that while penalties related to cyberrisks tend to be minimal compared to other fines in the financial sector, such as those related to business ethics, “the evolution of regulations, the severity and the increase of the frequency of those controversies suggest that the amount of those cyber-related fines can rapidly increase in the future.”
Felipe Gordillo, senior ESG analyst at BNP Paribas Asset Management in Paris, said increasing regulatory pressure in Europe comes in the shape of the General Data Protection Regulation, which comes into force in the European Union in 2018. Organizations in breach of the new rules can be fined up to 4% of annual global turnover or €20 million — whichever is greater. “There is a material regulatory impact for companies,” said Mr. Gordillo, speaking on a panel at the Principles for Responsible Investment’s annual PRI In Person conference, held in Berlin Sept. 25 to 27.
Read more: Cybersecurity getting attention of companies, too
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