How this Aussie gaming stock measures up
You might assume a company whose business model revolves entirely around gambling would automatically be disqualified from any ESG ranking system. But as the following wire explains, the high-performing, homegrown gaming stock PointsBet Holdings (ASX: PBH), which is taking the US market by storm, does things a little differently - as our stock selection process shows.
PointsBet is a licensed corporate bookmaker with operations in Australia and United States and operates within the sports gambling industry. EGG have given the stock an overall ESG score of 0 (E +1, S -1, G 0). A score of 0 puts PBH in the bottom quartile of ESG scores in the EGG portfolio. As part of the EGG investment process, each company in the portfolio is tested for ESG compliance at the pre-analysis and pre-trade stages.
Each company is given a score of -1, 0 or +1 for each of its E, S and G credentials. The aggregation of these three scores provides us with the company's total "ESG score".
The total ESG score ensures a precise conversation can be had between analysts and management regarding ESG issues, the ultimate aim being better ESG outcomes for investee companies and EGG portfolios.
Currently, we believe an outcomes-based approach will have the most success in achieving better ESG outcomes in the portfolio. The ESG scoring process for PBH highlights two main areas of concern for the investment team.
- The company operates in the sports gambling industry.
- The company doesn’t demonstrate best practice in terms of diversity of the board and management team.
These are both Social issues within ESG and given the materiality of risks associated with these issues the stock has been assigned a -1 for Social.
The company has a high score (+1) for Environmental as it has a very small environmental footprint with the largest impacts coming from travel, energy and consumables.
PBH has a neutral score (0) for Governance with our primary concern relating to the lack of an independent majority at the board level.
We have found this is more common with high growth, early-stage, founder-led businesses and have discussed this extensively with management.
As a result, the company has been penalised for a +1 score on this measure. We have discussed this matter with management and believe that progress to a majority independent board will be achieved in the medium term.
The investment team has met frequently with PBH management over the last two years and raised our ongoing concern relating to the industry it operates in and the lack of diversity (female representation) in the senior management and board.
PointsBet acknowledges the negative by-products associated with the industry and strictly adheres to all relevant codes and practices which vary by jurisdiction. We believe the board and management are acutely aware that long-term success relies on continuously improving the company's reputation and the way in which it serves the community and the company is responding, to wit:
- PBH won three awards last year at the eGaming Reviews, including the award for most socially responsible operator, with the judge there noting that PBH is a ‘clear market leader in social responsibility in the industry’.
- PBH has a wide range of initiatives and tools to tackle responsible gambling including:
- Front end client education/awareness functions,
- Ongoing RSG reports produced on demand and alerts generated (triggers such as multiple accounts, checks against exclusions from database signups etc),
- Deposit limit/duration settings,
- Client ‘take a break’ features and options, and
- Permanent self-exclusion. The Encyclical September Quarter 2021
- PBH signed a five-year agreement with the University of Colorado last year, allowing the University opportunity to earn extra revenue for new customers linked to ads it displays. $75,000 annually will go to support the development of student-athletes and the agreement also allows student-athletes opportunities for future internships/job placements.
- The recent hiring of the strongly credentialed Teresa Fiore as head of Responsible Service of Gambling.
- PointsBet won Sports Betting Operator, Socially Responsible Operator and US Rising Star Honors at EGR North America Awards 2020. The company concedes it has work to do in the area of diversity.
We understand that the company's remuneration and nominations committee, in conjunction with the board and management, are in the process of setting meaningful targets for further advancement of diversity within the company.
The aim of this is to increase the number of women in leadership roles at the board, executive level and management roles.
This wire is an extract from the September edition of our quarterly newsletter, The Encyclical. The Log is a new addition to The Encyclical, which aims to share different perspectives from the team at Eley Griffiths Group.
In this issue, our "ESG In Focus" gave investors an insider view of how we incorporate the principles of ESG analysis into our investment process.
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Ben Griffiths is the managing director and a senior portfolio manager at Eley Griffiths Group and has over 30 years of financial markets experience. He Co-founded Eley Griffiths Group in 2002 with Brian Eley following a successful career as joint...