ESG opportunities in cybersecurity: 1 stock pick for serious tech investors

For over a decade, analysts on Wall Street have been exploring the growing importance of cybersecurity within the ESG market. 

As pressure begins to mount for companies to provide regulators, investors and consumers with transparent cybersecurity and ESG commitments, the intersection of both these avenues will reshape the agenda for corporate governance and corporate social responsibility. 

The cybersecurity market is a continuously changing enterprise, and for investors, this brings to life a new set of opportunities that can provide them with authentic portfolio diversification opportunities. 

Part of these developments is the gradual shift towards artificial intelligence and machine learning capabilities that have made cybersecurity a red-hot niche in the tech sector. Both big and small enterprises are focusing their efforts on incorporating AI applications more effectively, and for investors seeking to leverage these possibilities, the cybersecurity market is where the opportunities are. 

CyberArk Software Limited 

In an ever-changing world of possibilities, CyberArk Software CYBR is making waves in the market of information technology security, seeing more than 50% of Fortune 500 companies entrusting CyberArk Software applications to identify and isolate threats, ensuring valuable digital assets and critical information are kept out of the hands of cybercriminals and malicious hackers. 

The company serves a plethora of leading industry enterprises, with applications being used in the health-care, government, automotive, insurance, manufacturing and banking sectors. Broad diversification of their services has meant that CyberArk can now effectively develop tools that comprise advanced enterprise technology and digital applications that reduce cybersecurity risks and promote operational efficiency across multiple levels. 

CyberArk develops advanced digital security solutions embedded within existing information technology systems. Their collection of services and solutions enables more secure internal operations, helping to protect employees and applicable computer hardware.

Additionally, they develop and operate several cybersecurity programs to safeguard external administrators and provide security solutions for cloud-based technology applications. 

Financial results for Q1 2024 exceeded management expectations, with the company witnessing a 54% gain in year-over-year annual recurring revenue through subscription services, which ended the quarter at $621 million. 

Based on financial reporting, CyberArks’ total ARR grew a robust 34% year over year to more than $811 million for the quarter. There was a strong increase in subscription revenue across their entire portfolio, with total subscription revenue increasing 69% from $92.7 million in Q1 2023 to $156.2 million in Q1 2024. 

Key performance for the quarter was attributed to positive improvements in their subscription services, which include various Software as a Service applications and self-hosted contracts. CyberArk further highlights that both SaaS and self-hosted subscriptions include maintenance contracts of their providers and perpetual licenses.

On the other hand, maintenance and professional services revenue was slightly down, dropping from $65.1 million in Q1 2023 to $62.4 million in Q1 2024. Similarly, perpetual license revenue also fell from $3.9 million to $3.0 million during the same recorded period. 

Based on analysis by Morningstar, CyberArk Software has an overall low ESG risk rating of 15.72. The low-risk rating can be attributed to the company’s ability to invest in appropriate training, guidance and corporate governance. 

According to a sustainability report published by the identity security company, management has developed and deployed an ESG strategy that focuses on the importance of human capital management through piloted returnship programs and investing in environmental sustainability. 

For starters, in July 2023, CyberArk announced an advancement in their returnships programs that assist midcareer women in technology, and further the development of diversification, equity and inclusion practices in the company. 

Effective investment solutions for cybersecurity and data privacy training form part of the core fundamental ESG initiatives of the company. In its recent ESG report, CyberArk highlights its ongoing efforts to provide employee training and wider certification of human capital in critical privacy and role-specific data training. 

During recent months CyberArk completed the inaugural Scope 1 and Scope 2 greenhouse gas emissions inventory to align corporate-level climate strategies and provide more comprehensive risk assessments. 

The environmental risk assessment helped to simulate the potential impact of climate change on the company’s near and long-term operations. Throughout the analysis, CyberArk has committed itself to adapting its operations to an ever-changing low-carbon economy, and the ability to increase awareness and advocacy for more sustainable corporate practices. 

Cybersecurity and sustainability

The link between cybersecurity and corporate sustainability responsibility remains vague in comparison to the wider industry. However, changing corporate behavior and understanding of how to bridge this divide is fast becoming a pressing issue for shareholders. 

In this case, CyberArk, while still in the beginning stages of establishing itself as not only a leader in digital identity security but also ESG, is setting a standard for cybersecurity organizations regarding their influence on social responsibility initiatives and wider corporate governance. 

Though there is still plenty of room for improvement, CyberArk brings to light how both cybersecurity and ESG principles can become complementary to one another. More than this, their efforts highlight the importance of long-term sustainable development of products and services, while simultaneously increasing shareholder value and exposing their portfolios to more conscious investment opportunities. 

Read more: Morningstar strengthens its ESG reporting tools for investors