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The percentage of investment funds with policies that exclude gambling is highest in Europe and lowest in North America, according to a Morgan Stanley survey of environmental, social and governance (ESG) issues.
About 24 percent of the 580 funds surveyed barred gambling investments, which made the industry more popular than tobacco but less popular than alcohol, Morgan Stanley said.
Gambling shares were excluded from 32 percent of funds in Europe, 19 percent in the Asia-Pacific region and 14 percent in North America, the brokerage said.
In general, exclusion policies were most popular in Europe, with 80 percent of funds having some such policy, compared with 65 percent in Asia-Pacific and 40 percent in North America.
The survey comes as the image of the gambling industry becomes more important, both to the public and regulators, but also fund managers looking to invest in shares.
This year, Stockholm-listed Kindred Group started listing the percentage revenue generated by high-risk players, in response to Swedish government pressure on companies to become more socially responsible and sustainable.
About 69 percent of the funds that exclude gambling said they did so due to the “negative impact the company's products have on society”, rather than ESG concerns on investments or demands from clients, the brokerage said.
That finding suggests that if companies can “prove their credentials for operating and supplying sustainable, recreational entertainment”, funds might reduce their exclusion of gambling, Morgan Stanley said.
But nothing will change quickly, as only 1 percent of funds have any intention to increase gambling exposure, the company said.
Still, with US states opening up rapidly over the last two years and online gambling performing well during lockdown, gambling industry shares have soared.
Since January 1, 2020, gambling stocks have risen about 140 percent, compared with declines in most other leisure industry sectors, Morgan Stanley said.
Cruise and cinema stocks are down 45 percent to 50 percent, contract caterers and pubs are down about 30 percent, and hotels in the EU are down about 20 percent. Fitness and US hotels are up about 5 percent over the period.
In the survey, gambling stocks were more readily accepted than coal, tobacco, military equipment and services and civilian arms.
Nuclear, oil, alcohol, violent video games and gas companies were less likely to be excluded.
Morgan Stanley’s own Sustainable Fixed Income Opportunities Fund does not invest in companies that get 10 percent or more of their profits from gambling activities, according to the fund’s restriction screening policy.
“Gambling activities embed a high risk of generating direct negative social impacts, in particular addiction and over-indebtedness, as well as indirect impacts especially for more vulnerable groups, including reduced familial stability and household income and increased propensity to crime,” the fund wrote.
