What is ESG, and why it matters

The ICE365 and DigitalRG.com Materiality Matrix will be the first project to plot the gaming sector’s ESG priorities in the coming year. Click here to take part.

We live in a world where it is no longer enough for companies to simply generate profits and disregard their wider impact on society. 

Environmental Social Governance (ESG) is a framework incorporated into a company’s business model, which helps it identify and improve its social and environmental impact, enabling its growth into becoming more sustainable and socially responsible. 

Crucially, the incorporation of all three ESG factors into a company’s strategy ensures that it is future-proofed. 

Not only does it reduce long-term risks, but the integration of ESG increases a company’s competitiveness, creates shared value, increases employee and customer retention, and improves relationships with stakeholders.

Though ESG crucially covers a wide breadth of issues, it is only one way of framing a company’s efforts to address issues of its impact. Other well-known key industry definitions include corporate social responsibility (CSR), sustainability, corporate responsibility, and people planet profits, all of which also address these issues. 

However, the words that frame this drive to create a positive impact are not important. What is important is that they all boil down to the idea that it is not what you do with the money you earn, it is how and why your business exists. 

ESG not only considers how a company operates and its direct impact but also the impact created by its suppliers or consumers. This can take many different forms as not all ESG issues are relevant to all organisations. 

For the gaming industry in particular, this means lessening the negative effects of gambling and increasing its positive social and environmental effects, with the most substantial emphasis being placed on responsible or safer gambling. 

Environmental concerns

However, while all companies have particular areas which they must specifically address to become more sustainable, the three pillars of ESG do not exist in isolation from one another. In almost all cases all three should be addressed at some level when building an ESG or sustainability strategy. 

The environmental factor, as the first pillar of ESG, has become arguably the most widely recognised. It looks at a company’s impact on the natural environment and how to mitigate the harm it could be causing. 

Despite being commonly seen as the pillar of ESG least applicable to the gaming industry, this is changing as more companies begin to address their environmental impact. This is down to investor pressure on all three pillars, and to some extent a realisation that we all must act on environmental impact before it’s too late. 

In the gaming industry not only do brick-and-mortar casinos and betting shops create huge amounts of environmental issues, from biodiversity degradation to air pollution, but online gambling also harnesses a huge amount of energy for its online servers. 

Considering the impact of Covid-19, as the GB Gambling Commission reported in 2020 that 96% of people it polled placed bets at home, this impact through online gambling is growing. 

So while igaming’s environmental impact might not be as visible as other industries, it cannot be ignored and if the Paris Agreements’ aim of net-zero emissions by 2030 is to be met, the industry must understand its impact. 

Two companies that have recognised their environmental impact are, for example, La Française des Jeux (FDJ) and Kindred, both of which have science based emissions aligned with the Paris Agreement. 

This included a commitment to sourcing 100% of its electricity from renewable sources by 2023 for Kindred. In addition, chief executive Henrik Tjärnström acknowledged that “businesses have an important role to play in fighting climate change”.

FDJ is also committed to preserving biodiversity  and limiting the impact of gaming materials on forest biodiversity such as using 100% Forest Stewardship Council (FSC)-certified sources for their scratchcards.

Other companies in the industry are also pushing the gaming industry into a new era of environmental consideration and creating opportunities for greater industry-wide positive environmental impact. 

Social impact

The social factor looks at how a company interacts with communities both internally, such as employees, and externally, such as customers and suppliers. 

It considers how these relationships are managed and how the company impacts these people and institutions. This is the pillar in which responsible gaming is considered, as it specifically seeks to help vulnerable groups who are at risk of developing gambling problems, by preventing excessive and underage play. 

Responsible gaming is now recognised as crucial to business throughout the gaming industry. For example, the European Lottery Association now requests that all members must complete its responsible gaming certification. 

That is not to say that there is not still a long way to go for the gaming industry to create a net positive impact. For responsible gaming to be truly effective, it must be embedded in the day-to-day operations across the industry, from designing low-risk games to creating a safe environment to play in, addressing the three core areas of prevention, detection, and intervention. 

Internal affairs

The third pillar of ESG, governance, addresses the internal affairs and the way that the company is run. 

This not only reflects the practices and procedures it uses to govern itself but how it adheres to the rule of law and accommodates the needs of its external stakeholders. 

At an industry level, this has a direct and specific impact on the gambling industry as a heavily regulated industry. Governance structures from managers, executives, and board members must all be law-abiding and suitable to maintain licensing. 

Indeed, to make a difference in the area of responsible gaming, organisational governance must reflect a commitment to creating a positive social impact through top-down decisions. Without this, fundamental change will not happen. 

Not only does this concern issues such as top-down decision-making on sustainability and governance structures but issues of anti-corruption and anti-money laundering. The Australian Transaction Reports and Analysis Centre (AUSTRAC), Australia’s anti-money laundering agency, recently extended a probe initially focused on Crown, to investigate other local operators, amid allegations of “serious non-compliance”. This demonstrates again that the industry has a long way to go. 

In recent years the gambling industry has begun to incorporate ESG factors in its business models. However, the inconsistency between not only the three pillars but between companies means that not nearly enough progress has been made. 

An industry-wide effort that addresses how money is made and why these companies exist, with companies being held accountable for failing to meet benchmarks, is what is needed for true positive impact. 

In order to understand the key issues on which the industry needs to focus, click here to submit a personalised materiality assessment. This will be used as part of the ICE365 Materiality Matrix, in collaboration with DigitalRG.com, to create the most accurate picture of the ESG elements the gambling industry will prioritise in the year ahead. 

About DigitalRG:

DigitalRG.com is the only membership-platform helping the industry do well by doing good. It provides the necessary steps and tools to: 

1. Understand your social and environmental impact,

2. Define tailored ESG objectives and related action plan, 

3. Train team members & partners,

4. Measure effectiveness, report and achieve certifications.

DigitalRG believes companies need to be part of the solution for a more sustainable planet for all.