Environmental, Social, and Governance in the iGaming business in 2023: What, when, and why
Your reputation is a valuable asset…if it’s good. Companies in every industry aim to perform well, grow, and turn bigger and bigger profits. Others want to make an impact with their revolutionary ideas. And, in 2023, all of them try to appeal to investors by focusing on environmental, social, and governance standards.
ESG or Environmental, Social, and Governance
To evaluate a company’s performance and development, its stakeholders (investors, state regulators, employees) analyze how well it deals with ESG — Environmental, Social, and Governance. This framework of corporate behavior has become increasingly important for investors. But what does ESG stand for?
Environmental standards regard a company's impact on nature, such as its commitment to sustainability and actions taken regarding problems such as pollution, climate change, and resource depletion. For example, they might make donations to environmental organizations or replace all of their corporate cars with electric vehicles.
But the best practices are those that change the whole strategy of the company in a way to be more sustainable from a long-term perspective — good if a company creates a strategy making it different from competitors, perfect if a company combines its business goals with helping nature.
Social standards refer to a company's impact on people, including its internal HR policies and practices (such as when it comes to gender and racial diversity among employees, inclusion, employee turnover), and general influence on society.
Companies show their attitude to important social issues worldwide and participate in policies such as standing against animal testing, drug abuse, human rights violations, and privacy violations — crucial for the global iGaming industry, seeing as gambling addiction, responsible gaming, and anti-money laundering would also fall under this category.
Governance is how you organize your internal structure, including board members, decision-making, and executives. It will also include data protection, communication, employee training, corporate values, transparency, tax strategy, reducing corruption, and everything that makes investors more confident about the company’s stability and healthy management.
Statistically, more companies fail because of poor management or disagreements between partners than because of a lack of finance, making this an issue that interests investors the most.
ESG is not just a one-off assessment — it requires changes in the whole company operation and strategic planning to remain stable and growing even when market conditions change.
Why companies need ESG
If your business is growing and you’ve never thought of implementing any of the principles mentioned above, you might wonder: why bother? Here are some reasons why companies like IKEA, PepsiCo, Apple, and PayPal do.
- Risk management: ESG can help prepare a company for changes that may occur in future. We discussed possible risks iGaming businesses might face here, but in general, all companies are vulnerable to crises such as the COVID pandemic, world economic crises, climate change, etc. Companies also implement ESG policies to prepare themselves for fluctuations in the labor market, changes in regulation, economic turmoil, and other challenges.
- Increasing value: ESG has become a priority for potential investors. Employees, customers, and governments also react poorly to ESG policy failures or, likewise, appreciate it when the company lives up to standards. Reducing carbon emissions can lead to savings, and social awareness can eventually boost customer loyalty. Increased operational efficiency while promoting diversity and inclusion can lead to innovation and better decision-making. If you demonstrate your contribution to a better future, reduce exposure to potential risks, work on long-term financial performance, and comply with official requirements, you are much more likely to attract both investment and customers, leading to sustained growth.
- Reputation: developing and maintaining ESG policies indicates that the company is thinking about both its own future and the future of the world it operates in. This attitude attracts more investors, partners, and clients, because it builds a brand everyone wants to be associated with. Imagine two companies in the same niche. One plants a tree for every purchase / agreement, and the other one was just embroiled in a discrimination scandal. Which one would you prefer to be publicly associated with? The gambling industry is no exception; in fact, it’s quite the opposite — given all the stereotypes around this risky industry, it’s even more important for sportsbooks and casinos to keep their record clean.
- Regulation: Compliance with the required ESG principles will help companies avoid fines, and transparent governance will make these companies less vulnerable and more attractive for investors. Some countries recommend or require businesses to disclose their ESG practices.
ESG in regulations
ESG is not just a modern virtue signaling trend — there are countries that include it in their regulatory framework and require businesses to report on their adherence to (or failure to uphold) ESG standards.
The list includes the EU Directive on non-financial reporting, which requires large companies to include non-financial information in their annual reports; the UK Companies Act 2006, which requires companies to include a strategic report in their annual reports, which must include information on ESG matters; and South Africa’s King IV Code of Corporate Governance, which recommends that companies’ annual reports include information on their ESG practices.
Reporting on Environmental, Social, and Governance lets governments evaluate companies’ compliance with laws and recommendations, but also how transparent and healthy their operation is. Some stock exchanges also have implemented listing requirements that include ESG disclosure.
However, even if such reporting wasn’t a condition, many companies find it beneficial to disclose their ESG practices to stakeholders, including investors, customers, and employees. Doing so demonstrates their commitment to sustainability and social responsibility, which can improve their reputation and help attract socially responsible investors.
Whether a private company has to disclose its finances or not depends on where this company is registered. However, even if it’s not required by law, many businesses prefer to share their performance. Publicly listed companies have to publish annual reports.
While ESG is a very important part of a report, the overall goal is to show the company’s development in many financial and operational areas:
- Financial statements, including the company's balance sheet, income statement, and cash flow statement. We discussed the financial statements and what information they can provide in this article.
- Management discussion and analysis (MD&A) reporting from the company’s management, including description of strategies, risks, and opportunities.
- Corporate governance, describing the company structure, its board of directors, executive compensation, and shareholder rights.
- Business overview, including information about its products and services, markets, and competitors.
- Risk factors: This section outlines the major risks facing the company, including economic, regulatory, and competitive risks, and the strategies for handling them.
- Auditor's report, with an independent assessment of the company's financial situation and internal controls.
- Other information may include a letter from the CEO, summary of shareholder returns, and ESG report.
When including ESG into an annual report, companies normally use stats and metrics to make the information more detailed and transparent. They also sometimes make an additional audit from a third party, just like they do with finance. Some companies issue a separate ESG report in addition to the main annual report.
ESG best practices around the world
Without diving deep into potential investment analysis or regulatory issues, let’s check how we personally feel about situations like this:
- Tesla, famous for making eco-friendly vehicles affordable and supporting Greta Thunberg, has been accused of racial discrimination and poor working conditions.
- Apple, seemingly the world’s favorite brand, has been accused of working with supplier that used forced labor.
- Meta, once a dream employer, fired over 11,000 employees in 2022 and has plans to continue layoffs.
- World-leading automaker Volkswagen — number one in innovation, compliance, and climate strategy according to the Dow Jones Sustainability Index — earned its green credentials by cheating on emission tests.
What effect did all these scandals have on these companies? That’s right, trust your intuition: ESG failures can affect companies’ reputations and — more important when talking about business — revenues.
There are, however, good examples of companies which take ESG seriously. Several countries have implemented regulations requiring companies to disclose some level of ESG information in their reports. Here are some examples:
- IKEA’s entire business model is focused on ESG: “99.5% of the wood used for IKEA products is either Forest Stewardship Council-certified (FSC) or recycled.” The company supports its suppliers in accessing renewable energy and aims to have a 100% renewable energy across its value chain — instead of using recycled materials, the company invents products that will be reused for new furniture.
- Vaseline, working together with dermatologists, launched a program to prevent skin problems for those displaced by natural disasters or humanitarian crises.
- Unilever is committed to sustainable sourcing, reducing waste, and minimizing the environmental impact of its operations. The company has also made progress in promoting gender equality and empowering women in its workforce and supply chain.
- Starbucks has made commitments to sourcing sustainable coffee and reducing its environmental impact through measures like reducing waste and conserving water. The company also has programs to support its employees and invest in local communities.
ESG in the iGaming industry
The iGaming sector is no different from other industries. Gambling companies can grow to reach the scale of a large international corporation and, just like other businesses, make an impact on environmental and social problems.
ESG measures can bring in investors who are interested in making positive change, encouraging them to enter an industry they might otherwise skip over. Andrew Millington, the head of UK equities at Aberdeen Standard Investments, said “If investment managers who care about ESG shun companies within that sector, we have no influence or oversight to affect positive change.” There are many options for investment today, but it’s always best to invest with an eye on the future, even before considering regulations, compliance, and reputation among players and partners.
One of the world’s most renowned licensing bodies, the Malta Gaming Authority, recently announced a project to support the ESG trend and encourage licensees to report on their performance. A new platform for voluntary ESG reports and an Environmental, Social, and Governance (ESG) Code of Good Practice will be created in 2023, painting the licensor in a good light and giving iGaming companies a chance to demonstrate their commitment to society and the environment.
Responsible gambling, self-exclusion, transparency, and anti-money laundering policy are no longer just an advantage, they’re a must — and there are a few examples of iGaming companies which already take them seriously.
ESG best practices in the iGaming industry
There are great examples of the ESG practices among both B2B gambling providers and B2C operators.
- Kindred Group shares the percentage of its revenue gained from harmful gambling, demonstrating the company’s transparency, and aims to reach 0% in this index. The company also follows principles of diversity, inclusion, and equity in its internal organization.
- 888 Holdings, a betting and gambling provider, established a special ESG committee to ensure that “that issues such as safer gambling, the climate change agenda, diversity and inclusion, and community engagement are consistently incorporated into the group's strategy and decision-making.”
- Game provider Greentube promotes a healthy work environment with equality and education, responsible gaming, reducing carbon emissions in daily operations, supporting non-profit social initiatives, and compliance with regulations on its website.
What else helps an iGaming company’s reputation?
Slotegrator recommends including Environmental, Social, and Governance standards in the strategic planning of a company, as we believe transparent and socially conscious business practices are not only potentially more profitable, they create a better future. It’s better for your reputation to be an asset than a liability.
Another thing to keep in mind is that putting this strategy on paper is never enough. Everyone, from C-suite executives to entry-level employees, should know the company’s mission, values, and principles — a topic we discussed in detail here.
As a gambling solutions provider with many years of experience in the industry, we also recommend paying close attention to regulations and acquiring a license for your iGaming business. And if you’re not sure where to start, schedule a consultation with our team.
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