An established cornerstone for investors has within the past decade become Environmental, Social, and Governance (ESG) criteria, which allows investors to align financial portfolios with their values. These criteria can be used to evaluate the impact a company has on the environment, the social responsibility of the company, and the robustness of its governance practices. ESG started out being applied in specific industries, including renewable energy, healthcare, and technology. However, ESG investing has also expanded into less conventional sectors, including the online casino industry. What this expansion entails is a critical question for operators such as Ignition Online Poker, and stakeholders and investors alike: can the gambling sector, which has a historical association with addiction, crime, and social harm, be a responsible investment under ESG standards? This is the question that this article will attempt to discuss and address.
How ESG is becoming a growing priority
Over the past decade, ESG investing as surged in popularity, and it is projected by PwC that ESG-focused institutional investment will soar 84%, reaching US$33.9 trillion in 2026. What these numbers can tell us about is that there is a broader societal shift, where there is more focus on responsible consumption and investment. Drivers such as increased awareness of environmental crises, social inequalities, and corporate scandals is resulting in this shift, which ultimately means that investors are looking beyond financial returns when choosing their investment portfolio. Now aspects related to the broader impact that investments can have on society and on the planet is being taken into consideration.
Both governments and regulatory bodies alike are prioritizing ESG to a larger extent than previously. One example is the Sustainable Finance Disclosure Regulation (SFDR) by the EU, which requires all financial market participants and financial advisors to inform investors about the sustainability risks, to enhance the integration of sustainability risks into the decision-making processes. In the U.S., the Securities and Exchange Commission (SEC) has indicated the intent to introduce more stringent ESG-related disclosure requirements. What these two examples reflect is the growing significance of ESG in global finance.
The growing market of the online casino industry
A market that has grown exponentially, especially in the wake of the COVID-19 pandemic where online entertainment saw a huge surge in popularity, is the online casino industry. When physical casinos shut down, online gambling platforms saw a huge increase in users. According to a report by Grand View Research, the global online gambling market size was valued at USD 63.53 billion in 2022, and it is expected to grow at a compound annual growth rate (CAGR) of 11.5% from 2023 to 2030.
However, just as much as the industry is expanding rapidly across the globe, the industry has also been embedded in a skeptical lens. The industry has been criticized for its role in exacerbating gambling addiction, facilitating money laundering, and contributing to social harm. Even though the industry is growing larger than ever, this skeptical lens continues to be a great challenge, especially when evaluating online casinos through an ESG lens.
The environmental impact of the online casino industry
Compared to other industries, the online casino industry does not have a huge environmental impact. The main environmental footprint is related to high energy consumption, which can be very energy-intensive, especially with the increasing popularity of cryptocurrency gambling. To address the issue of high energy consumption, online casinos have started to adopt various sustainable practices, which include offsetting carbon emissions and using energy-efficient servers.
Kindred Groups is an example which is paving the way for other online casino operators. It has committed to reducing its carbon emissions and has joined the Science Based Targets initiative (SBTi), which is a way for the Kindred Groups' climate targets to be validated to be in line with the climate goals of the Paris Agreement. Conclusively, these efforts from operators like Kindred Group is indicating that the online casino industry is starting to uphold their operations to environmental responsibilities.
The social responsibility of the online casino industry
Perhaps the most important and expected aspect of evaluating online casinos from an ESG perspective is social responsibility. The industry has for years been associated with gambling addiction, mental health issues, and financial distress. One study has found that problem gambling is found in approximately 1% to 3% of the population in most countries, and it is especially the accessibility and convenience of online gambling which is driving this statistic.
To address these challenges, online casinos have implemented measures and provided tools to promote responsible gambling. This includes functions such as self-exclusion tools, deposit limits, and partnering with mental health organizations. One example is Flutter Entertainment, which is a big operator of known online gambling brands. This company has committed to donating money to driving social change through sport, research and education in mental health, and technological advancements. This type of community engagement is one way to make the online casino industry more socially responsible. There are also examples of companies which adopt advanced technologies which can be used to identify and assist at-risk players. By leveraging artificial intelligence to detect problematic gambling behavior, companies can intervene before the issue becomes too overpowering for the player, and reduce the social harms associated with online gambling.
So, can gambling be a responsible investment?
To answer this question is complex. Based on the ESG criteria, the industry is still facing some challenges related to social responsibility and governance, but there are also positive signs of progress. At this point, the best way to look at it is that the decision to invest in the online casino industry from an ESG perspective will depend on the individual investor's values and risk tolerance.