ESG Key Issue of the Week: Customer Privacy and Data Security
Posted on October 4th, 2016 by OWLinsightseducation ESG sustainability
High-profile stories about Customer Privacy and Data Security, an ESG key issue relevant to industries that handle client funds and information, are usually about breaches from the outside: hackers absconding with bulk personally identifiable information, passwords, or payment details from a large company’s customer database.
But as we’ve seen in the news lately, such a breach can take a possibly less dangerous (but more insidious) form: abuses from within, caused by the very people who are supposed to protect us.
SASB warns that companies who don’t manage this Social Capital issue properly could see “decreased revenue and consumer confidence,” which is certainly supported by the recent case of Wells Fargo (WFC).
(Of course, Wells Fargo’s issue is complicated by the appearance that the breaches may have been rooted in governance trouble. While the two are intertwined, they’re still distinct problems. We’ll start with the social issue today; next week we’ll work our way upstream to discuss the relevant governance issue.)
Some hard costs of any data breach could include legal fees, fines, lawsuits, cost of repayment/repair, cost of identity protection or other compensatory services offered to victims (in case the breached data goes external), PR campaign funding, staff retraining, and restaffing.
Additional fallout might include loss of clientele, loss of credibility, drop in share value, shareholder divestment, and loss of employee morale. These issues may be tough to quantify in black and white, but each is not without its hard costs.
While the big-time external data breaches can pose a larger identity theft issue for customers, these many small cuts are more dangerous — for the company that allowed them, at least. Being hacked doesn’t look as bad as hacking yourself.
But that’s next week’s story. Come join us again!
This week kicks off our new series, the ESG Key Issue of the Week. You’ve heard a lot of buzz about how ESG can help make good investments, but many investors still misunderstand the how and the why.
Besides its most prominent public face, where ESG scores help institutions invest with their conscience, this same environmental, social, and governance data has material value. Simply put, this data reveals how well a particular company is run, how it relates to its stakeholder base, how it manages its risks for the long term, and so on.
The key issues, as outlined by the standards boards, include some obvious ones — for instance, energy management clearly tracks quantifiable costs — and some that at first glance may not seem to promise immediate benefit to the company’s bottom line.
Find out why each of those ESG issues has been recommended for a particular industry based on materiality. Every week we’ll translate another one into plain language. Stay tuned!