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The number of investment funds with policies that exclude gambling has increased by 5 percent over the past year, according to a Morgan Stanley survey on investors' exclusionary policies.
An estimated 29 percent of investors are excluding gambling now, up from 24 percent in the same survey last year.
Adam Rivers, a partner at KPMG in London who leads the firm's work in the betting and gaming sector, told VIXIO GamblingCompliance there is “increasing pressure on funds to show adherence to ESG (environmental, social and corporate governance) principles and sectors seen as 'higher risk' are facing these pressures.”
“So it's perhaps less reflective of the risk profile of the sector changing and more reflective of the investor landscape continuing to evolve,” he explained.
As a result of the increased difficulties in “accessing already difficult capital markets”, Rivers said the gambling industry “definitely” needs to adapt quickly to ESG frameworks.
KPMG’s own research shows consumers also increasingly care about ESG when making purchasing decisions, including in gambling.
“This will accelerate the need to adopt robust ESG frameworks,” Rivers said, adding that "it is already happening and we’re seeing companies respond".
Morgan Stanley’s 2022 Global Investor Survey found both alcohol (16 percent) and violent video games (9 percent) were excluded from fewer funds than gambling products. However, 46 percent of funds exclude tobacco products.
Discussing the results of the latest survey, analysts from Morgan Stanley explained that the change is being driven by European and long-only funds.
European exclusion rates for gambling increased to 42 percent, jumping from 32 percent the year before, while US rates reduced slightly to 12 percent from 14 percent.
Long-only funds excluding gambling investments jumped to 31 percent in 2022, compared with 36 percent in 2021.
Morgan Stanley analysts believe the current gambling regulatory situation on the continent or uncertainty surrounding the release of the much anticipated UK Gambling Act white paper are not heavily impacting the change.
“The European regulatory pendulum is slowing (if not stopped entirely)” which “could lead to positive sentiment changes towards the sector as the scale of potential regulation-driven earnings revision risk also reduces”, the analysts wrote in their review of the survey.
Instead, analysts say the rise in European exclusions could be due in part to changing requirements regarding the EU Sustainable Finance Disclosure Regulation.
“There is no change in North America or among hedge funds, and expects regulatory risk for our coverage to reduce in the coming years, which should attract incremental investor interest,” the Morgan Stanley analysts said.
