The pandemic has emphasised the importance of building resilience into the economy; we should take the same approach to protecting ourselves from cyber threats, argues Aanand Venkatramanan, Head of ETF Investment Strategies, Index Funds, at LGIM.
I was recently asked whether a computer virus could ever be as economically devastating as the COVID-19 virus. We certainly shouldn’t compare the human impact of the two types of virus: COVID-19 has been a global tragedy, and our thoughts are first and foremost with all those affected.
But in looking to build back more resiliently from this crisis, we can and should apply what we have learned as broadly as possible. One clear lesson is the importance of acting swiftly to prevent and control threats, which brings us to cyber security.
As technology transforms every job, industry and government – and as more data migrates to the cloud, both private and public – no one can claim to be immune from cyber attacks and data breaches. The need to build up cyber defences, and the potential cost of not doing so, has never been higher.
Remember Travelex, for example? A ransomware attack against the company on New Year’s Eve left its systems down for days and the share price of its parent firm, Finablr, subsequently dropped by over 50% by the end of January.
Sophisticated cyber attacks could push any type of company into bankruptcy. A report issued by the National Cyber Security Alliance found that 10% of small businesses in the US that suffered a data breach did in fact end up filing for bankruptcy, and 37% experienced a financial loss.
This is not just the result of operations being halted or money being stolen; companies also face massive fines for lapses. In the European Union, General Data Protection Regulation rules allow for a maximum fine of €20 million or 4% of annual global turnover – whichever is greater – for infringements.
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Companies don’t have to resign themselves to succumbing to these attacks. In a parallel way, the economic disruption experienced so far this year has demonstrated the value of investing in technological solutions early.
For example, the coronavirus has hit retailers hard – but not every retailer has suffered to the same degree. Most traditional supermarket stocks in the UK have declined this year, for instance, but Ocado* has thrived. Ocado isn’t the only one with an online service, so what distinguishes it?
I believe the key differentiator is the adoption of technology. Businesses like Ocado that have invested more in technology and automation, and have built robust digital communication structures, are in my view more likely to beat their peers and overcome shocks.
A pandemic-induced lockdown is one such shock. Another could be a devastating computer virus. Whatever comes next, companies should invest in the technology that will make them more resilient.
*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.
This article has first been published on lgimblog.com.