Sustainability has garnered a lot of attention in recent years. ESG (environmental, social, and governance) issues have always affected us, but with the growing importance of climate change, the impacts of Covid-19, and the recent Russia-Ukraine conflict, the impacts are now more evident than ever.
The gaming sector is not always viewed as ESG-compatible. Gambling stocks have often been regarded as ‘sin’ stocks, and some people refuse to work in a sector they feel does not match their values. These perceptions have implications on companies’ operations and profitability.
However, sustainability, as seen through an ESG lens, holds the opportunity to transform the gaming sector into one that contributes in significant ways toward making the world a better place.
What does sustainability in gaming look like?
Sustainability is multifaceted, not least in this sector. But there are common priority areas for gaming companies worldwide, some of which are outlined below.
At face value, the gaming sector might not seem like it has many environmental impacts. But digging below the surface, we can see that gaming creates a demand for carbon emissions – such as through data centers and business travel. This makes it critical for gaming companies to look at how they can reduce their organization’s wider carbon footprint – such as by requiring that data centers use renewable energy.
Arguably the ESG issue at the top of all gaming stakeholders’ agenda is responsible gaming and providing support for at-risk customers. In fact, this topic emerges as one of the top material issues within sustainability reports issued by the sector. Digital tools that detect problematic play and empower customers to play safely will be an important part of the solution.
Employee inclusion, diversity, and equity should also be near the top of CEOs’ agenda. However, to give an example, women are not achieving and progressing to senior positions in equal proportion to men in any industry. The perception is that women are much less likely to join the gaming sector in the first place, particularly in the growth area of online gambling – this despite more than 50% of graduates being female. However, research from McKinsey shows that diverse executive teams perform better: companies in the top quartile for gender diversity are 25% more likely than those in the fourth quartile to outperform on financial profitability, compared to industry medians. These statistics present an opportunity for the sector, which is still male-dominated (with some notable exceptions at the leadership level) to reflect on what more can be done to attract women to the industry, and to ensure that their work environment enables them to flourish and progress.
Naturally, diversity is not limited to female representation, and there are aspects of diversity where the gaming industry is doing better than average – for instance, gaming companies in the UK have higher international representation and a much larger percentage of people whose sexuality is anything other than straight than in the general population. Interestingly, the McKinsey study
found that companies in the top quartile for ethnic and cultural diversity outperformed those in the fourth by 36% in terms of profitability, which suggests that gaming companies may already be reaping some financial benefits as a result of this aspect.
Additionally, many gaming companies already do a sterling job of supporting local communities – such as by sponsoring sports teams – under what was historically their Corporate Social Responsibility (CSR) program. With ESG going beyond CSR, these initiatives now need to find their place in the overarching ESG strategy of the company.
Within the governance sphere, the economic performance and financial stability of the firm are naturally important to the firm itself. However, the company’s tax contribution also forms part of its positive contribution to society. When the tax strategy is aligned with the company’s ESG values, transparency about how much tax is paid and where it is paid can be used to underscore the message that the firm is making an important contribution to the wider community.
Other important governance aspects to consider include ethical considerations, such as the company’s policies and practices to prevent corruption, as well as the need to prevent betting and gaming from being used to support crime. Amongst others, this requires consideration of where the company chooses to do business, as well as the mechanisms in place to prevent money laundering.
How can gaming companies leverage ESG to improve their performance?
ESG can be an essential tool in risk identification, management, and reduction – leading to the long-term resilience of the firm. It can be used to reduce costs – such as those arising through fines, litigation, energy consumption, and carbon offsetting.
Beyond cost and risk reduction, ESG can be leveraged to create value. A company can attract customers, investors, and employees based on its sustainability credentials. It can also improve relationships across an entity’s value chain, and with regulators. Measures taken to improve diversity can lead to innovation, resulting in sustainable growth. And companies that are leaders in ESG can potentially benefit from increased access to capital and reduced cost of capital.
A gaming company must ensure that its ESG credentials do not amount to greenwashing. As stakeholder expectations rise and regulatory requirements – such as the upcoming EU Corporate Sustainability Reporting Directive (CSRD) – tighten, companies need to be prepared to identify, measure, report and improve their ESG credentials, benchmarking themselves against their peers, and reflect on what they can do better.
Companies that take the lead on sustainability may well find themselves at an advantage, being better prepared to meet stakeholder and regulatory expectations, and better able to survive and thrive in these changing times.
Content by Rachel Decelis, KPMG Malta and Russell Mifsud, KPMG Malta
Image credit: KPMG Malta