The role of environmental, social and governance (ESG) issues in the world of gambling, as well as in a wider business context, is frequently debated and sometimes even politicised, but just like data protection before it, the European Union is forcing the issue. This Forensic Explainer takes a look at existing examples of how big gambling companies engage with sustainability reporting ahead of next year's new compliance requirements.

The Corporate Sustainability Reporting Directive (CSRD) has been in effect since January 2023, bringing with it cascading levels of ESG reporting responsibilities for any companies doing business in the EU.

From the end of the current financial year, large companies will need to begin publishing information in their annual reports on what ESG issues matter to their business and how they are addressing them.

Then, over the next few years, an increasing number of companies will be captured by the regulation, until eventually more or less every gambling company with a touchpoint in the EU will need to report on the ESG activities of their entire global businesses, including any subsidiaries.

The EU is looking for more than just lip service. Companies should demonstrate that they truly understand the issues they are reporting on and evidence measures they are taking to mitigate those concerns.

This is no small feat, not least because the potential issues encompassed by ESG are vast and various experts on the subject will give different answers about precisely what is covered and how important each issue really is.

Thankfully the industry does need to start from scratch. Several trailblazers in the gambling world have begun reporting in the style required by the CSRD — either because of a commitment to ESG at board level or because they are currently required to perform some level of reporting by the Non-Financial Reporting Directive (NFRD), which has been replaced by the more expansive CSRD.

This report makes use of this headstart by taking a look at well known names in the gambling world and comparing their contrasting approaches to ESG reporting.

The review will reveal that although there is core consistency across those companies who choose to report in depth on sustainability, where they choose to focus their energies and how they choose to document that vary considerably.

The motivations for these differences vary from an ideological difference about what ESG truly means for gambling and because, despite a shared industry, every gambling business is slightly different from the next.

KPMG Malta's ESG experts explain what sustainability means for gambling and how companies should adapt to this new reality on the GamblingCompliance Podcast.

Materiality

Before digging into the specific examples of ESG reporting, it is important to define one of the more mysterious terms that crops up with great frequency in the new CSRD era.

“Materiality” and “double materiality” are central to the kind of ESG reporting required by the EU, and meeting these new compliance requirements without a basic understanding of what they mean is near impossible.

In short, they describe how to find out what elements of sustainability are important to your business and, vitally from a compliance point of view, what you are expected to report on.

Although ESG is a deep well of complicated issues, starting with materiality is at least fairly straightforward, and has the added benefit of helping focus in on what is an otherwise overwhelming array of potential subjects.

Things that are “material” to a business are whatever has an impact on it. For example, within the scope of sustainability, if having or lacking a diverse workforce has an impact on a company, it is a material area and should be reported on.

The act of assessing double materiality is to apply the same line of thinking in the opposite direction — answering the question, what areas of sustainability does my business impact?

These include obvious areas such as “what is the climate impact of our business?” or “how do we as an operator create or limit gambling harm?”.

But it also forces companies to answer less obvious questions: returning to the theme of diverse employment, the CSRD would also expect companies to consider how their policies and behaviours aid or hinder fairness in hiring practices.

For example, does the lack of female representation at c-suite level discourage women from applying for senior roles? Or do recruitment materials featuring only white faces hamper a company’s efforts to foster a diverse workforce?

It is important to note that complying with the CSRD, and other international ESG requirements, is not a process of exposing flaws. Sustainability reporting is not intended as a confessional exercise.

Companies should ideally have positive policies in place to address the areas highlighted by a double materiality assessment. But it equally does not allow for sins of omission.

Failure to cover a material area in line with the European Sustainability Reporting Standards in the hopes of avoiding embarrassing disclosures about lax policies risks punishment for non-compliance.

Analysis

The CSRD is now in effect, but we will not get to see the reports that it requires until after the end of this financial year. 

For this first round, large listed companies in the EU will have to comply, but from 2026 a huge range of gambling companies doing business in the EU will become in scope.

Luckily for those seeking to navigate this new compliance landscape, the CSRD is not a completely new invention. 

It replaced the Non-Financial Reporting Directive, which required large listed businesses to do a more stripped down version of ESG reporting along with their financial statements at year end.

At the same time, interest in a company’s ESG credentials has been growing worldwide over the past decade.

All of which means there are companies applying double materiality assessments and producing associated reports that we can compare and contrast.

Who and Why?

This report looks at three household names in the gambling industry, all of which have dipped their toe into ESG reporting in the past few years.

On the operator side, we will look at Flutter, which is headquartered in the EU, but now a global gambling giant listed in the United States, with a secondary listing in London; and Entain, which is listed in London, with a global reach.

Both are operators with highly varied offerings, covering both land-based and online. If an element of ESG is material to a gambling company, there is a high chance that it will affect at least one of these two global giants.

We will also look at Kambi, which is headquartered in Malta and listed in Sweden. B2B suppliers might believe they have less to worry about when it comes to CSRD compliance, but the EU directive is supply-chain agnostic.

In other words, it does not care whether a company is customer-facing or not. If suppliers claim they have fewer material sustainability concerns than operators they will need to evidence it via at least a double materiality assessment.

Making It Material

Materiality is most often represented by a graph, and both Entain and Flutter chose to break out their material issues in this way.

In their respective 2023 sustainability reports, both major operators employed graphical representations of which issues mattered most to their businesses.

Both companies placed safer gambling as their highest priority, which should come as no surprise, and listed ethical and complaint behaviour high on their lists.

But even at this stage, where both firms are listing their highest conviction sustainability issues, priorities appear to diverge.

Entain lists corporate governance as the third most important element of its ESG strategy, but the term does not feature at all in Flutter’s materiality assessment.

This is unlikely to be because Flutter does not value good governance at its executive level, but simply demonstrates that ESG reporting remains an inexact science. Even post-CSRD — with Flutter noting that it will fully comply with the new EU law in 2026 — there will be more than one way to follow the rules.

Although both rate the issue highly, there is also a difference of opinion on the exact value of diversity among employees.

Entain lists diversity, equity and inclusion (DEI) as one the eight most important issues affecting the company, but says DEI has the smallest impact on the business of those top issues and comes sixth on its impact on stakeholders — the second stage of double materiality assessment.

By contrast, Flutter lists diversity, equity and inclusion in the highest quadrant of its table, indicating that the company views it as of vital importance not only to its business, but also to its stakeholders.

Source: Flutter Sustainability Report 2023

Looking at this contrast in the context of the CSRD, both could well be considered a compliant approach.

The mission of the European Commission is not to ensure that all companies, even those that appear very similar on the surface, are placing ESG topics in the correct hierarchy.

Instead, officials want to see proof that a company has carefully considered several core sustainability issues and it wants to understand what firms are doing to address the challenges that have been identified as important.

Kambi, by contrast, does not have a dedicated sustainability report, instead devoting a section of its annual report to ESG issues.

The supplier says it has carried out a double materiality assessment, but does not break out the results of that review in a table, or any other format. Instead opting to list a set of key topics and the steps it is taking to address their challenges.

Flutter and Entain’s more advanced communication around ESG is likely at least in part to be a representation of the relative external pressures faced by operators and suppliers.

Historically, operators have been under much more intense scrutiny, both from the general public with whom they directly interact and gambling regulators.

Kambi’s lighter assessment of its sustainability credentials is representative of the greater distance the gambling supplier sector in general has to cover between now and the date that each company falls under the scope of the CSRD.

This challenge comes in lock step with a general increase in compliance requirements for suppliers. Direct licensing for B2B companies is becoming increasingly common and several authorities are becoming more concerned that suppliers in their regulated markets are serving black markets elsewhere.

Ethical questions for suppliers are expected to increase in severity over the next few years and the CSRD forms a major component of that rise in pressure.

Big Issues

Kambi leads its ESG summary with a section on technology.

Tech, the sportsbook supplier notes, is its primary product, and ensuring that its software is safe and providing a good technology product to the business is obvious, but Kambi clearly feels that it also registers on an assessment of what is important to its stakeholders.

“Our technology is not only provably safe but also fully compliant with varying regulations worldwide, subject to continuous scrutiny to uphold elevated standards.”- Kambi 2023 Annual Report

Entain’s report notes that the company is increasing its use of artificial intelligence (AI) and lays out how its Data Ethics Charter provides guidance on the ethical use of AI.

With a view to the impending EU Artificial Intelligence Act, Entain said it would be releasing an AI Governance Framework this year, which has since been published, and has delivered training to its Privacy and Data Science teams.

Flutter, by contrast, makes no mention of AI ethics at all, although it does note several uses of artificial intelligence in its products, particularly around safer gambling.

There is a similar split in acknowledging the central importance of cybersecurity to ESG. 

Kambi says it has an “unwavering commitment” to strong information security and that “mitigating cyber-related risks remains a pivotal factor in Kambi’s progression”.

Entain’s thoughts on cybersecurity are more focused on protecting the end user from data breaches. Among its initiatives, the UK-headquartered operator says it paid out more $100,000 in so-called bug bounties to “ethical hackers” who identify security vulnerabilities and report them before more nefarious actors can take advantage of them.

The lack of any substantial mention of cybersecurity in Flutter’s report again exemplifies the diverse range of available approaches to ESG reporting.

Even though it identifies data protection as a high priority area in its double materiality assessment, Flutter’s 48-page sustainability report lists no details on how it approaches addressing the risk it has identified.

While Kambi dedicates only a few paragraphs to its impact on the climate — although notably including an estimate of how many kilowatt-hours of electricity it used per employee in 2023 — both Flutter and Entain dedicate pages to their progress towards net zero.

Both operators have committed to reducing their net emissions to zero by 2035. 

Source: Entain ESG Report 2023

Entain and Flutter also point to their work with third parties to bolster their climate credentials.

As seen above, Entain engaged the Carbon Trust to verify its data on company emissions, while Flutter notes it has joined the Business Ambition for 1.5°C campaign and has had its targets verified by the organisation behind the standard.

What's Next?

This comparison only scratches the surface of how deep into the realm of ESG companies can tread and how far they will need to go to satisfy new EU regulations.

As large listed companies prepare their 2024 financial reports, this new compliance burden will be high on the agenda and the remainder of the world will be watching closely for clues on how to comply, and for the European Commission's reaction should any firm be found wanting.

For more details of the future of ESG in gambling, you can check out our webinar with experts from Malta, the United States and Canada.

Vixio will continue to follow the issue of ESG compliance closely, including more detailed information on what the CSRD demands of businesses, coming soon.