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Why Privacy Should Be ESG Investors’ Next Big Priority

A byline by our Founder, Li Jun

Li Jun, Founder of Ontology, the high performance, open-source blockchain specializing in decentralized identity and data, discusses that while investors are integrating ESG factors into investment decisions, data privacy still remains one of the most pressing issues facing organizations today.

*NOTE* originally published in Global Finance & Banking Review

Investors are increasingly integrating ESG (Environmental, Social, and Governance) factors into investment decisions in the hope that sustainable businesses offer less risk and long-term return on investment. Against this backdrop, data privacy and data management remains one of the most pressing issues facing organizations today.

Just recently, BlackRock CEO, Larry Fink, predicted a “tectonic shift” among investors towards sustainability-focused companies, which he believes is accelerating at an even greater speed as a result of the Covid-19 pandemic. As the largest money manager in the world, BlackRock has immense power in driving markets, however they are not alone: most large investment banks believe investing in sustainable companies is the future, a move that also helps to mitigate risk in uncertain times.

With sustainable investment surging, the risk of privacy and data breaches grows higher, as these relatively nascent investments may not have effective data management protocols in place. It is for that reason that the next big trend to join sustainable investing will be data privacy and data management.

When investors analyse companies they are thinking of investing in, they conduct thorough reviews of the companies’ finances, internal and external processes, hiring procedures, data management protocols, market position adherence to regulations such as GDPR and CCPA; the list is endless. At a time when cyber attacks and data breaches are happening more frequently than ever before, ensuring effective data management safeguards are in place is crucial to a company’s performance, especially one that is likely to receive increased investment. Investment firms must discern how the organization safeguards its system against an attack or fraud. How an organization safeguards its data against such attacks could set it apart as a waste of an investment, or a high profit deriving enterprise with sustainability at its core.

By integrating new measures such as Privacy-Enhancing Technology (PET) and decentralized identity solutions, organizations can stay ahead of the curve and, in doing so, increase attractiveness, competitive advantage, and revenue streams. These benefits can undoubtedly be enjoyed by sustainable companies, but also by those looking to enhance their market position while playing catchup with the now more popular than ever ESG-focused companies. The popularity of sustainable investments may soon outweigh that of companies that cannot put sustainability at the forefront of their business objectives, meaning that these companies must now find other ways to remain competitive and attractive to prospective investors. Maintaining industry leading data management processes can greatly assist with this.

Ensuring comprehensive data management procedures is also financially beneficial for companies seeking an edge over their competitors: according to a report completed by the American Ponemon Institute in 2020, the average cost of a data breach was $3.86 million. This cost, in tandem with the impact on a companies’ share price, could be devastating for many companies seeking to maximize their position. Safeguarding these procedures also makes it easier to ensure adherence to regulations such as GDPR, breaches of which bring with them significant financial implications. For example, Google was fined $57 million in 2018 for a breach of GDPR, forcing the company to amend their data management processes. The bottom line is that effective data management makes a significant difference not only to the profitability of a company, but also to the reputation. This is similar to the reputational concerns wrought upon companies that disregard sustainability: reputational damage costs money.

IDC predicts that by the year 2025, 175 trillion gigabytes of new data will be created around the world. With more and more people working from home, away from the often greater data protection offered by physical servers in-office, company data will be at a far more significant risk than before in years to come. As hybrid working and cloud computing become the norm, vulnerabilities will emerge and with them, hackers too. Research has shown that the greater the amount of data at stake, the greater the number of hackers that exist. Bad actors will remain a feature of the data ecosystem, but preventative measures are actionable and achievable. Companies in every industry; from sustainable investments and investment banking, to blockchain, healthcare, and commerce, can enhance their market position by adopting privacy-enhancing technology and decentralized identity solutions to ensure the risk of data breach is minimized.

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