The forgotten sin stock: why are responsible investors holding gambling giants?

Earlier this year Swedbank Robur announced it had excluded the commercial gambling sector from its investments, as part of a wider strengthening of its policy for responsible investments. The news followed increasing criticism being lobbied against Swedish asset managers and pension funds for their investments in the gambling industry – the country is home to several betting giants, including Betsson and Kindred.

The move got RI thinking about the industry in the responsible investment space; was Swedbank late to the party? It was assumed that as a ‘sin stock’, gambling would be naturally avoided by many institutional investors with an active focus on ESG.

However, this is not the case. Many big responsible investor names can be found in the top 10 shareholder lists of gambling giants across the globe, despite the very core of gambling and betting business models raising a range of ESG concerns, particularly on the social side, with studies finding those with a gambling addiction racking up debts and going bankrupt, as well as losing relationships and jobs, and in some cases committing suicide.

Even former industry players are trying to curb its damaging impacts. Fintan Drury, former chair of Paddy Power, teamed up with co-founder Stewart Kenny and Ian Armitage, who was managing director of Mercury Private Equity, Paddy Power’s first institutional investor, to form Stop Gambling Harm.

“Gambling is a complex industry that has potential to have a large societal impact and as active managers we have ongoing engagement with investee companies within the sector.” 

The explosion brought about by tech-enablement has led to “excessive gambling behaviour by people who cannot gamble responsibly, which is causing real social harm,” Drury tells RI. “The industry knows this, has witnessed the explosion in revenues but for it to meet any form of ethical standards it needs to curb these excesses.”

So, does gambling fit into a responsible investor’s portfolio? “Although it may seem very innocuous compared to people dying of cancer from smoking, or being shot in a blood diamond conflict, if you think about it, it can play a really big harmful role and destroy lives,” Old Mutual Investment Group’s Head of Responsible Investment, Robert Lewenson, tells RI, when comparing gambling to other sin stocks. “Is there really a need for it in society? Is it merely entertainment or are people’s livelihoods at risk? I’d say it lends itself more to the latter.”

Unsurprisingly, RI found there are plenty of investors who outright exclude the sector, for example, Robeco, Impax Investment Management, Trillium and Boston Common Asset Management. The latter tells RI: “The primary reason we view gambling as harmful is that compulsive gambling has the potential to be destructive for individuals and families.”

Similarly, since 2019 KLP has excluded 77 companies due to them earning more than 5% of their revenues from the industry. Head of Responsible Investment at the Norwegian pension giant’s asset management division, Kiran Aziz, explains: “I understand you could say that responsible gambling consumption can have some positive elements in people’s lives, but we think when you assess the major negative impacts that gambling addiction can have, it doesn’t have a place in the world of ESG, particularly when it comes to the S.”

Nevertheless, a raft of institutional heavyweights are still amongst the top shareholders of gambling companies.

Kindred Group, the parent of nine gambling companies including Nordic giant Unibet, boasted DNB Asset Management, AP3, Nordea Asset Management, and BlackRock Fund Advisors according to Market Screener – APG AM and TIN FONDER were also listed by Kindred on its website as of January 2022.

London-listed Entain – behind brands such as Ladbrokes and PartyPoker – has AXA Investment Management, Abrdn, Vanguard and NBIM in its top 10 shareholders according to the latest data on Market Screener.

NBIM is also a top 10 shareholder in in Swedish giants Betsson – as is DNB AM – and Evolution Gaming, its fellow Swedish mobile gaming company – Leovegas also lists Lombard Odier in its top shareholders, according to the latest data on Marketscreener. French part state-owned lottery and online gaming company La Française des Jeux has NBIM and Amundi Asset Management among its biggest shareholders, according to Marketscreener.

When RI reached out to the named investors, it seemed that, for those who responded to our query, the rationale behind holding the firms was to engage with the gambling and betting companies.

Janicke Scheele, Head of Responsible Investment at DNB AM, says its holding in Kindred was mostly in their large technology funds and that it engaged with it in 2020 and 2021 on sustainable gambling practices and data security and privacy.

“We do not exclude companies involved in commercial gambling on a general basis. However, we have expectations regarding responsible gambling. The aim is to ensure strong programmes and measures to prevent gambling addiction and to prevent minors from gambling. Furthermore, some of our funds have additional exclusion criteria that block investments in gambling,” she explained to RI.

On how the engagement with Kindred was going, Scheele notes: “Kindred seems to be working hard towards the target of having no significant revenues from harmful gambling by 2023. They also claim that underage gambling is a limited problem. The company has become more transparent about the undertaking, they started in 2021 to share the revenue that comes from high-risk customers and the achievements of the action programme. We will continue to engage the company, as well other companies that we are invested in.”

Kindred did not respond to a request for comment.

Abrdn – which in addition to its Entain holding is the biggest shareholder in London-listed online casino, sports betting and poker company 888 Holdings, according to Marketscreener – also said that it doesn’t have a gambling exclusion policy, although it does have dedicated sustainable investment funds for clients who wish to screen out the sector.

“Gambling is a complex industry that has potential to have a large societal impact and as active managers we have ongoing engagement with investee companies within the sector. Our regular engagement with our holdings is focused on responsible gambling, the regulatory environment, how they deal with customers who get into difficulty and the governance of their businesses. Considering these issues is at the heart of our investment decisions and forward-looking analysis of all our holdings in the sector,” said a spokesperson. Previously, Andrew Millington, its Head of UK Equities, wrote: “There is a strong argument for not avoiding problematic industries, like tobacco or gambling. If investment managers who care about ESG shun companies within that sector, we have no influence or oversight to effect positive change.”

Old Mutual’s Lewenson agrees. Although the South African investor has a number of ESG products that exclude gambling stocks, it holds South Africa-listed Tsogo Sun Gaming Limited and Sun International Limited through index products. Old Mutual is in dialogue with both holdings about social risk practices, responsible gambling, governance, and renumeration – the latter relating to whether management is incentivised to control the regulatory environment like underage gambling and addiction.

“To be an absentee landlord would not be appropriate – if we are going to hold, we will do so to achieve a better outcome and make sure the social ills related to gambling are reduced,” Lewenson said.

Anthony Leeming, Sun International’s CEO, told RI: “As investors are taking responsible investing more seriously, we are increasing engaging on social risk practices, responsible gambling, governance, and remuneration. We have engaged with Old Mutual on these a number of times. Regulation and social responsibility is critical in our industry and we hold management to high standards in these areas which form part of management’s KPIs and as a result will impact remuneration if there are any shortcomings or failings.” At the time of publication, Tsogo Sun Gaming Limited had not responded to RI’s request for comment.

For Stop Gambling Harm’s Drury, investors need to be engaging with gambling companies in their portfolios and tell the boards and management that the current situation is untenable. “They need to be forceful about the balance between profit growth and the avoidance of public harm. They can’t say they’re not aware – everyone is – so the owners need to tell the industry that the status quo isn’t acceptable.”

Taking the investor’s points on the importance of engagement even further, TIN Fonder warned that excluding the sector could increase “private and overseas ownership in the sector”, which could lead to an “overhanging risk that companies will not prioritise sustainability in their agenda.”

However, for those not invested in the sector, the consensus was engagement would be fruitless.

Aziz explains: “Normally we pursue active ownership, but with gambling it’s a problem with the sector. Engagement with individual companies wouldn’t solve the problems.”

The Principles for Responsible Investment (PRI) echoed KLP’s comments. When RI asked whether its recently launched human rights initiative will take a stance and/or focus on one or all of the sin stocks, for example, tobacco, pornography, gambling, and cannabis, a spokesperson said: “The issues are more inherent to the products and services, and therefore the value of engagement is limited – it’s more a question of whether investors and their beneficiaries are comfortable with them,” the person says. “As a consequence, many of our signatories do not hold these stocks for values or human rights reasons, and therefore do not have influence.”

For Drury, changes to the industry are inevitable – it’s more about how and when. “The longer we leave it, the more damage that will be done – why do we have to wait for more people to get hurt?”