Solactive BitSight Cyber Risk Index quantifies cyber risk for investors
BOSTON — FRANKFURT — October 6, 2020 — BitSight, the Standard in Security Ratings, and Solactive, a German index engineering firm, today released new research demonstrating that a company’s cybersecurity performance is an indicator of business performance. Analysis shows that indices composed of well-performing BitSight-rated companies outperform their respective benchmarks by 1% to 2% annually. For certain sectors, such as U.S. Technology, well-rated companies outperform the benchmark by 7% per year. The findings are an endorsement for today’s introduction of the Solactive BitSight Cyber Risk Index, a financial index that will enable investors to invest in companies who are top cybersecurity performers as measured by BitSight.
Investors are deeply concerned about cyber risk affecting their investment portfolios. A 2019 Responsible Investment Survey from RBC found that cybersecurity is the #1 ESG risk for investors. A recent survey of more than 60 institutional investors with $35 trillion in assets under management conducted by the EY Center for Board Matters found that cybersecurity is the #3 threat to portfolio companies’ strategic success in the next three to five years.
The Solactive BitSight Cyber Risk Index helps investors factor cyber risk into their investment decision-making. By continuously and non-intrusively collecting cybersecurity performance data on global organizations, BitSight provides quantitative, objective and validated analytics, avoiding the data collection challenges typically associated with ESG investing. The Solactive BitSight Cyber Risk Index can be used as direct underlying or benchmarks of financial products such as ETFs or structured products across the following five index universe compilations: U.S. Market, European Market, Developed Markets, Asia-Pacific Market, and U.S. Technology Market.
Cybersecurity is both a risk and opportunity for investors
New Solactive analysis of BitSight Security Ratings demonstrates that investing in strong cybersecurity performers can actually deliver higher returns. Until now, investors have primarily thought of cybersecurity as a risk to the portfolio; research shows that share prices on average fall 7.27% in a two-week period after a publicly disclosed breach. By leveraging BitSight data, Solactive finds a clear signal that companies with strong cybersecurity performance also financially outperform their market peers. This aligns with earlier independent research which shows that BitSight provides the only security rating statistically correlated with a reduction in the risk of a breach.
Solactive created five Cyber Risk Indices composed of the top 25% of companies based on cybersecurity performance as measured by BitSight. The Cyber Risk Index versions of U.S. Market, European Market, Developed Markets, and Asia-Pacific Market all show a similar picture of a solid outperformance over their respective benchmarks of around 1% to 2% per year. In the U.S. Technology version, the Cyber Risk Index outperformed by the benchmark by 7% annually.
The market impact of the research and partnership
Steve Harvey, chief executive officer, BitSight: “BitSight is powering a new era, where cyber risk is integrated into every market decision and strong, measurable cybersecurity performance is a market differentiator. This unprecedented research based on BitSight’s unique data will not only affect investors’ views on cybersecurity, but also the way that C-suite and security professionals manage and measure cybersecurity performance inside of their organizations. For BitSight, this is another independent, statistical validation of our market-leading Security Ratings, further cementing the reason why the global marketplace -- investors, insurers, governments, and businesses -- trust and use the BitSight platform.
Timo Pfeiffer, chief markets officer, Solactive: "For Solactive, it has always been crucial to consider topics from different perspectives than the mainstream. This attitude is why we wanted to work with BitSight in the creation of our new Solactive BitSight Cyber Risk Indices, as both companies realized the massive potential of cybersecurity-themed ESG investing. As companies are more and more dependent on effective cybersecurity infrastructure, this index reflects the crucial importance of this yet understated sustainability aspect."
About Solactive AG
Solactive AG is an innovative index provider that focuses on the development, calculation, and distribution of tailor-made indices across all asset classes. As of January 2019, Solactive AG served approximately 400 clients in Europe, America, and Asia, with approximately USD 200 billion invested in products linked to indices calculated by the company globally, primarily via 380 exchange-traded funds from a number of well-known providers. Solactive AG was established in 2007 and is headquartered in Frankfurt.
BitSight transforms how organizations manage cyber risk. The BitSight Security Ratings Platform applies sophisticated algorithms, producing daily security ratings that range from 250 to 900, to help organizations manage their own security performance; mitigate third party risk; underwrite cyber insurance policies; conduct financial diligence; and assess aggregate risk. With over 2,100 global customers and the largest ecosystem of users and information, BitSight is the Standard in Security Ratings. For more information, please visit www.bitsight.com, read our blog or follow @BitSight on Twitter.