Gambling stocks’ 300 per cent surge is a dilemma for super funds

Aristocrat Leisure has invited its biggest investors, including some of Australia’s top super funds, to Sydney next week to an unusual event for a pokies giant: a day devoted to environmental, social, and corporate governance (ESG) concerns.

The guardians of the nation’s retirement savings, who are among the top financial backers of the gambling industry, will likely be watching keenly. Some funds concede that gambling, with its proven links to social harms, may become a tougher investment to justify to the millions of workers that put their money in the country’s $3.5 trillion superannuation system.

Questionable investment: Almost 40 per cent of Australian adults gamble at least once a week, a government survey found earlier this year - and the costs to society are huge.Credit: Peter Braig

“Society’s attitudes to what constitutes harm and the understanding of, let’s call it the true financial effects of harm, do change through time,” Ian Patrick, chief investment officer of the $260 billion Australian Retirement Trust, said in an interview, without discussing any companies. “I think you’d expect investments to shift with that.”

Gambling stocks have gained an average 300 per cent over the past decade, about 10 times that of the S&P/ASX 200 index, according to a basket of 10 ASX-listed gambling shares.

But as Australians lose about $25 billion a year to gambling, more per capita than any other country, super bosses are reflecting on how to align their investments with ESG ambitions as a pipeline of legislation to tackle social harms looms.

Ben Squires, head of investments at NGS Super, would like to eventually strip gambling stocks from his $14 billion fund, and is engaging with asset managers in the coming months on issues surrounding that.

“I don’t want it in the portfolio,” said Squires, referring to gambling in general and not naming any firms. “But there needs to be a thorough process that we go through to justify, on a financial outcome to members, why we would make those decisions.”

Gambling reforms

While the incoming gambling laws aren’t transformational, it’s still the most change seen in years. Victoria plans to impose betting caps, shorter opening hours for venues and slower machines, and New South Wales is reducing the number of allowed slot machines in venues. Furthermore, a recent parliamentary inquiry made 31 recommendations including banning online gambling ads and national regulation.

About 185,000 electronic gaming machines — known as “pokies” — were operating in Australia in 2021, according to data collated by the Queensland Treasury. More than 90 per cent of those machines are located outside of casinos, often omnipresent in community venues that entice customers with cheap alcohol.

AustralianSuper is the second-biggest shareholder in Aristocrat, the dominant maker of slot machines in Australia and one of the largest in the world.

“ESG is coming up more with investors in relation to Aristocrat,” Adrian Lemme, director of retail and gaming research at Citi, said in an interview. “This is where markets are headed, in terms of ESG becoming a bigger part of the investment process. So all companies obviously have to address it.”

Super funds have been among the most engaged of Aristocrat’s investors on environmental, social and governance issues, a spokesperson for the firm said in an emailed reply to questions. The ESG investor day on December 5 will canvass a range of issues with investors and analysts, including compliance with regulations and responsible investing practices.

“Aristocrat strives to lead our industries in some sustainability issues; on other issues we aim to keep pace with peers or make a meaningful contribution,” the spokesperson said.

AustralianSuper has by far the biggest gambling holdings among its peers, according to Bloomberg calculations using data from the fund’s website. The nation’s biggest super fund has about $2.7 billion worth of such shares in its default investment option, where members’ savings automatically go unless they choose other strategies.

‘It almost seems like [the super funds] are using our money for the wrong purpose.’

Former gambling addict Andrew Ientile

While the $300 billion fund has no current plans for divestments from gambling, CIO Mark Delaney concedes that portfolios need to reflect social and community expectations.

“Gambling is a classic ESG issue,” Delaney said. “It’s one whereby the social appetite and the regulatory environment evolves over time, and we need to be forward looking about how we do it.”

Almost 40 per cent of Australian adults gamble at least once a week, a government survey found earlier this year, with almost half considered at some risk of harm. But while climate risk features heavily in investment teams’ discussions, social issues can be trickier to tackle.

Super funds contacted by Bloomberg pointed to their responsible investment options as a way of members putting their savings toward stocks that are screened from industries like gambling.

“We’ve been engaging with these companies for a while around their social license and around what is responsible gaming practices,” HESTA chief investment officer Sonya Sawtell-Rickson said earlier this year.

“We’re pleased and supportive of the changes that are emerging in terms of trying to limit harm whilst allowing responsible actions.”

‘Disgusting’

Still, many punters don’t know where their retirement savings are invested, either through lack of efforts or because of the super funds’ own patchy disclosures. While funds are required to publicly disclose their investments, their members often have to wade through spreadsheets or obscure website pages to find them.

Recovered gambling addict Andrew Ientile’s pokies addiction led him into bankruptcy, and he’s since managed to rebuild his life. The 34 year-old health services worker was shocked to discover recently that his super fund held gambling stocks in its default investment option.

“Knowing what I’ve been through and knowing how destructive the gambling industry can be, and how much losses and things you can have in there, it’s disgusting to me,” he said.

“It almost seems like they’re using our money for the wrong purpose.”

Bloomberg

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