EU Sustainability Compliance Explosion Looms For Global Gambling

April 9, 2024
The European Union is set to unleash a massive new compliance burden on hundreds of gambling companies worldwide, requiring them to report publicly on their climate impact, diversity, responsible gambling practices and much more.

The European Union is set to unleash a massive new compliance burden on hundreds of gambling companies worldwide, requiring them to report publicly on their climate impact, diversity, responsible gambling practices and much more.

The Corporate Sustainability Reporting Directive entered into force on January 1 this year and will apply to the first wave of larger companies from the start of the 2024 financial year, which varies from country to country.

In 2025, all listed companies inside the EU with more than 500 employees will have to report on sustainability, based on data from 2024.

This initial wave will capture a meaningfully large cohort of gambling operators, even though it is limited only to those that are listed on an EU stock exchange.

Such companies will include Betsson and Kindred, which are currently part of Nasdaq Stockholm.

Also listed in Stockholm is supplier Evolution, likely the largest affected gambling company, which claims to have more than 16,000 employees. Elsewhere, Greek operator OPAP is listed on the Athens Stock Exchange and French lottery operator and potential Kindred buyer Francaise des Jeux (FDJ) is listed in Paris, among many others.

This cohort is largely the same as is currently captured by the EU’s Non-Financial Reporting Directive (NFRD), which has been in force since 2014, but the new directive will require new levels of detail and covers a greater range of sustainability issues.

From 2026, however, a lower threshold kicks in which promises to add a huge wave of gambling suppliers and operators to those companies currently required to issue sustainability reports.

Under the CSRD, any company doing business in the EU that meets two of three criteria will have to comply with the directive. The conditions are for a business, over two consecutive years, to have more than €25m on its balance sheet, more than €50m in net turnover or more than 250 employees.

The European Commission estimates that around 50,000 companies active in the EU will be covered by the scope of the directive at this stage.

Much like the General Data Protection Regulation (GDPR) that came before it, the EU’s new directive will reach well beyond the borders of continental Europe.

Initially, only EU-based subsidiaries of international companies will need to report on their sustainability, but from 2028 (with reports due in 2029) any qualifying company will have to report at a group level.

That will mean, for example, that industry giants such as Flutter and MGM Resorts will need to evaluate their entire global operations to follow EU rules.

Companies that fail to comply could face punitive action, up to and including financial penalties. Fine thresholds will be set by individual member states as they officially adopt the CSRD, but under existing NFRD rules countries such as Germany can issue penalties of up to €10m, suggesting penalties will be at least that high in some jurisdictions.

“What it does demand is self-reflection,” said Floris Assies, an affiliate marketer who runs Better World Casinos, a platform designed to rank gambling companies according to their environmental, social and governance (ESG) credentials.

“If you work for a company where it’s only about money, then it’s going to be very difficult,” he said.

Double Duty

A key part of complying with the CSRD will be for companies to complete a so-called “double materiality” assessment.

The concept of singular materiality refers to the impact the outside world has on a company. In this case, how sustainability issues such as climate change impact a business’ financial health.

Double materiality considers both this outside-in impact and the opposite, namely how the undertakings of a business impact sustainability in the wider world.

Adding to the waves of acronyms and specialist language surrounding the directive, affected gambling companies will need to refer to another body to understand exactly what they need to be reporting on.

The specific range of issues that the EU expects companies to acknowledge is defined by the European Financial Reporting Advisory Group (EFRAG), which was asked by the European Commission to create the European Sustainability Reporting Standards (ESRS). 

Those standards were officially adopted by the EU via a supplementary directive in December 2023. However, they could be updated in the future, in particular by the time the massive wave of gambling firms becomes affected by the new regulations in FY2025.

In documents designed to educate businesses on how to conduct these inquiries, EFRAG has laid out the basic steps of a double materiality assessment.

  • Step A: Understanding the context
  • Step B: Identification of the actual and potential impacts, risks and opportunities related to sustainability matters.
  • Step C: Assessment and determination of the material impacts, risks and opportunities related to sustainability matters.
  • Step D: Reporting.

Companies are expected to work out which of the long list of sustainability issues affect their business, which of them influence their stakeholders and then assess how severe the impact is on their own business.

For example, companies will be required to consider what effect they have on climate change. 

That could include considering how the use of energy-hungry data centres affects global warming, which would cover one half of the double materiality standard, and then assessing whether rising global temperatures and more erratic weather creates any potential risks for their business, to address the other half.

Materiality assessments often include complex graphs that plot various issues against axes that measure impact to stakeholders against impact to the business for each subject.

Issues such as the environment, emissions, effect on biodiversity, how much energy is used by hosting providers, office space, waste management and the climate impact of tech devices are among the many issues cited by experts that affect gambling companies.

“All of this you can plan to do more or less sustainably,” said Assies, adding that the EU will expect companies to justify this kind of decision-making.

An example from Kindred’s annual report in 2022 includes data points for 21 separate sustainability issues.

“You have to prepare your sustainability strategy, make a report about this and include it in your financial statement along with the management report,” explained Gabor Helembai, a lawyer with Taylor Wessing in Budapest.

“You have to put in effort to prepare this report in a proper way. It cannot just be a side exercise,” he said.

Floris said that a company’s success in complying with the CSRD will ultimately hinge on buy-in from top executives.

“Governance is where everything happens,” he said, noting that top management make the decisions about how much a company spends to minimise its negative sustainability impacts and amplify its positive ones.

Perhaps the only concrete certainty about the impact of the CSRD is that it will increase compliance costs for many gambling companies worldwide.

But there are also constructive expectations.

Beyond its broad goals to improve the natural and social environment for EU citizens as a whole, Helembai suggested there could be positive outcomes for the gambling industry specifically.

“If investors can see that you’ve reached your goals and you’re making progress that will [generate] more confidence that the gaming industry is not as bad as is thought,” he said.

Floris Assies and Gabor Helembai were speaking on a panel at the Prague Gaming & TECH Summit in March 2024.

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