Can gambling stocks be ESG friendly investments? Here’s why they might be

Nick Sundich Nick Sundich, December 7, 2023

Can gambling stocks be ESG friendly investments? Historically, the answer to this question has been a flat out no – at least in respect of many ESG fund managers. Gambling stocks cause significant financial losses and certain other problems – casinos can cause alcohol-fueled violence and money laundering. Gambling stocks themselves would argue that they are ESG-friendly – heck, Aristocrat Leisure (ASX:ALL) held a dedicated ESG investor day last week. But, of course they would – they’re biased.


What are gambling stocks? And what is ESG?

Let’s address the latter question first. ESG investing is a form of socially responsible investing that considers environmental, social, and governance factors in investment decisions. This means selecting companies that have strong ethical and sustainable practices, as well as positive societal impact.

Gambling, also known as gaming, is the act of wagering money or something of value on an event with an uncertain outcome in the hopes of winning additional money or material goods. Historically, gambling has been a controversial and heavily regulated activity due to its potential negative effects on individuals and society.

There are roughly a dozen gambling stocks on the ASX:

  • Aristocrat Leisure (ASX:ALL)
  • The Lottery Corporation (ASX:TLC)
  • Light & Wonder (ASX:LNW)
  • Tabcorp Holdings (ASX:TAH)
  • Star Entertainment Group (ASX:SCG)
  • SkyCity (ASX:SKC)
  • Jumbo Interactive (ASX:JIN)
  • Ainsworth Game Technology (ASX:AGI)
  • PointsBet (ASX:PBH)
  • Reef Casino (ASX:RCT)
  • Betmakers (ASX:BET)
  • Donaco (ASX:DNA)
  • BlueBet (ASX:BBT)

We have delved into some of these stocks before but don’t have time to delve into all of them here. But some of these names would be familiar with well-known among investors and even the broader public, namely the casino operators and betting providers. Others may not be as well known, but run software facilitating gambling activities like Jumbo Interactive.


Can gambling stocks be ESG friendly investments? The No case

Firstly, the social impact of gambling can be a cause for concern. A significant portion of gambling revenue comes from problem and addicted gamblers, who often face financial difficulties and personal problems as a result of their addiction. It has been estimated that Australia has the highest gambling losses per capita of anywhere in the world, with up to $25bn all up. This raises ethical questions about profiting from a potentially harmful activity.

Secondly, gambling companies often have a negative impact on local communities. The construction of casinos and other gambling establishments can lead to increased crime rates, problem gambling, and other social issues. This can have a detrimental effect on the quality of life for those living in these communities.

Another issue with the gambling industry is its lack of transparency and accountability. Casinos and other gambling companies have been linked to money laundering, tax evasion, and other forms of illegal activities. This raises concerns about their ethical practices and compliance with regulations.

Additionally, the environmental impact of gambling is often overlooked. The construction of large-scale casinos can lead to deforestation, pollution, and other environmental issues. Casinos also consume a significant amount of energy and water, further contributing to their carbon footprint.

Finally, the governance practices of gambling companies have been called into question. The industry is known for its lack of diversity and inclusion, with a predominantly male and white leadership. This raises concerns about fairness and equality within these companies.

But hey, at least they employ thousands of people right? Yes, but most of them are lower-paid working class jobs. And even the higher paid people can suffer. Remember when over a dozen Crown employees were jailed for nearly a year in China for marketing casinos?


Can gambling stocks be ESG friendly investments? The Yes case

Gambling stocks have become increasingly aware of all of the above impacts on the environment and society, and have taken steps to mitigate negative effects. This has led some to argue that gambling stocks can actually be considered ESG friendly investments.

One reason for this argument is that many gambling companies claim to have implemented measures to promote responsible gambling. This includes initiatives such as self-exclusion programs, where individuals can voluntarily ban themselves from casinos or online platforms. These measures not only help to reduce the negative impact of gambling addiction, but also demonstrate a commitment to social responsibility.

Moreover, the gambling industry has been making efforts to reduce its carbon footprint and promote environmental sustainability. For example, some casinos have implemented energy-saving measures such as LED lighting and utilising renewable energy sources. Additionally, online gambling platforms have significantly lower carbon emissions compared to traditional land-based casinos.

In terms of governance, gambling stocks are subject to strict regulations and compliance measures. This ensures transparency and accountability in their operations. Additionally, many companies have implemented ethical codes of conduct and have policies in place to prevent money laundering and other illegal activities.

Furthermore, the gambling industry is a major contributor to local economies through job creation and tax revenue. This can have positive social impacts, such as funding for education and healthcare. Additionally, some gambling companies have engaged in philanthropic efforts and donated to charitable causes.


The most important yes argument of all

One of the most common criticisms of ESG investing (or any kind of philosophical investing for that matter) is that you could be acting wilful so far as making financial returns is concerned. We noted that with anti-woke ETFs, they had substantially underperformed their benchmark indices.

Although some ESG ETFs have outperformed their benchmarks, they could be undermining their performance by missing out on gambling stocks, given many have performed well. Gambling stocks have gained on average 300% over the last decade, around 10 times of the S&P/ASX 200 Index. Yes, they did so by making Australia the highest per capita gambling losing country…but hey, the money, right?


More regulation coming

Nonetheless, you hear all the time that past performance is not a reliable indicator of future performance. And with significant regulation forthcoming, such as betting caps in Victoria and limits on poker machines in NSW, it might be harder for gambling stocks to continue to generate the kind of returns they have in the past. Consider that Crown thought it was better to sell itself rather than stay on the ASX – surely they would’ve done the latter if they thought more money was to be made?

Ultimately, the question as to whether or not gambling stocks be ESG friendly investments is one that isn’t a flat-out no, but one that few would be prepared to affirm except of course the gambling companies. This is a question for individual investors to decide for themselves and then put their money where their mouths are – one way or the other.


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