With almost every investor out there claiming deep commitment to the environmental, social and governance (ESG) cause, one issue on which there is surprisingly little debate is that of cryptocurrencies.
Investor enthusiasm for these two new buzzwords in the investing world is high, but few people are ready to admit that they are mutually exclusive: you cannot claim to focus on ESG and own Bitcoin at the same time.
One reason for the lack on debate on this could be the almost cult-like following that cryptocurrencies seem to have, with fans sometimes trying to silence critics using troll-like behaviour in the digital space.
It is a necessary discussion, because investing in both ESG and cryptocurrencies shows a lack of consideration for ESG that renders futile efforts to push companies to be greener, kinder and more transparent by influencing the way they get capital.
First and foremost, creating cryptocurrency – and in particular Bitcoin – uses vast amounts of energy. A recently published paper on the ethics of investing in cryptocurrency gives the example of Bitcoin mining, which generates more than 60 million tonnes of carbon dioxide per year.
Also, because mining for crypto coins requires specialised hardware, it is estimated that it results in 11,500 tonnes of hazardous waste per year.
All this without any real-world benefit to show at the end of the process – for example, an oil company still offers something of real value (fuel for transportation and heating) at the end of its polluting, fossil-fuel exploiting activity.
Only this should be enough to put investors who claim to care about ESG off investing in cryptocurrencies. But there is more.
Think of the social aspects. There are those who claim that cryptocurrencies can help people in oppressive regimes hold on to their assets due to the anonymity they offer and to the fact that they are not under the control of any government.
That is a fine argument, but unfortunately the same anonymity helps criminals and scammers hide the proceeds of their crimes and those same oppressive governments more easily conceal the money obtained from corrupt practices.
And finally, investing in cryptocurrency diverts funds away from companies that could contribute to the good of society, or at least create products or services that are useful, according to the paper, published in October under the title “The Ethics of Investing in Cryptocurrencies” and authored by Michael Conklin and Dr. Ruben Ceballos.
Consideration of ESG when investing is more and more prevalent, while the attraction of cryptocurrencies is increasing as inflation is rising and investors look for safe havens for their cash.
Serious debate about the consequences of investing in cryptocurrency for the environment and society is long overdue.