The popularity of environmental, social, and governance (ESG) funds seems to be growing, as mainstream investors are interested in not just making returns from their money, but to do it in a way that also benefits the world. So, how are cryptocurrencies part of the ESG boom? Unfortunately, cryptocurrencies may have undergone astronomical price surges, but they have developed a bad reputation when it comes to the environment. Certainly, it is a fact that some cryptocurrencies are harmful to the environment, but there are also plenty of those that are actually energy-efficient. Therefore, these cryptocurrencies could find themselves in an ESG-focused fund or investment portfolio.
The University of Cambridge conducted some research, which revealed that most of the Bitcoin miners who are based in China and are heavily reliant on coal for generating energy. It was also pointed out by the Cambridge Bitcoin Energy Consumption Index that a greater amount of energy is consumed by Bitcoin than in some of the countries in the world. According to the index, the energy consumption of Bitcoin is around 113.27 TWh of electricity. To understand the extent of the consumption, you should consider that the carbon footprint of a single BTC transaction is the equivalent of binge-watching YouTube videos for 51,210 hours or conducting 680,000 Visa transactions.
As the world is becoming more environmentally conscious and searching for ways to cut down greenhouse gas emissions, this could prove to be a big problem for the ESG-funds having deep pockets and the nascent industry. There are a horde of crypto protocols that depend on proof-of-work (PoW) for validating transactions, but the most well-known of them all is Bitcoin, considering its large market capitalization. Ethereum is another well-known PoW user, as it facilitates the decentralized finance (DeFi) market. However, it plans on migrating to a proof-of-stake (PoS) protocol, which is less energy-intensive.
ESG-focused funds will certainly not be interested in companies that have Bitcoin in their portfolio because of the increasing environmental concerns, as it uses the PoW process. ESG funds essentially refer to those investment portfolios of bonds and equities that integrate environmental, social and governance factors in the investment process. These funds comprise of investments that have high sustainability scores and steer clear of industries with poor records of labor relations, pollution, environmental hazards and management practices. Due to the popularity of ESG and how it is being prioritized by people, this week One River Asset Management filed for the approval of the One River Carbon Neutral Bitcoin Trust ETF with the Securities and Exchange Commission (SEC).
The emissions of the fund’s crypto holdings will be balanced through carbon offset purchases. The Net Zero Asset Managers Initiative is also supported by One River, along with Fidelity, VanEck and 84 other asset management firms. The purpose of these groups is to adjust their crypto mining practices for cutting down global greenhouse emissions. The PoS field currently has a number of contenders that are trying to attract the attention of ESG investors, such as Polkadot, Cardano, Celsius and Solana.