SECTION 6 : CRYPTO AND ESG economic foundation ,” Christian Katz , CEO at Helveteq , told ETF Stream .
Half-solutions
Crypto ETPs : Where next with ESG ?
Do not forget the ‘ S ’
Author : Stephan Roth
As ESG zealots wail , crypto ETP issuers arrive with haste – yet , they only come bearing halftruths and half-solutions – just enough to pacify the tantrum . Perhaps hard done by , long-term sustainable crypto ETP solutions are on the horizon but until then , patience will be required .
Described as “ energy angry ” in 2018 by current European Central Bank ( ECB ) President Christine Lagarde , crypto and ESG have been at loggerheads for some time . Bitcoin has come under particular scrutiny for its energy-intensive proof-of-work ( PoW ) consensus mechanism used for mining .
Estimates from the ECB suggests the electricity consumption of bitcoin mining operations between 2015 and 2022 were first equal to that of the Netherlands , before rising during the 2021 bull run and 2022 sell off to the same electric consumption as the entirety of France ( see Chart 1 ).
In light of growing climate concerns , regulation such as the EU ’ s amended MiFID II – that started on 2 August – requires financial intermediaries and asset managers to request the ESG preference of clients .
Although not explicitly banning PoW , the newly accepted markets in the crypto-assets ( MiCA ) framework has called for a more sustainable crypto industry , with a crypto environment impact report to be published in 2024 . “ There is a willingness in society , at all levels , to move towards a more sustainable
As environmental awareness rises among regulators , ESG-themed products have become ever more in vogue . Looking to kill two birds with one stone , ETP issuers have looked to capitalise on rising ESGsentiment and the lucrative business of cryptocurrencies .
As Roberto de Isidro , a digital asset research analyst at Global X , told ETF Stream : “ The crypto industry has a growing number of projects that focus on social and climate challenges and we believe the asset class is ESG-friendly .”
Perhaps the most natural crypto-ESG product would be ethereum . The secondlargest crypto by market capitalisation is in the middle of transitioning from a PoW to a proof-of-stake ( PoS ) consensus mechanism , where depositors validate transactions not computer power .
According to the Ethereum Foundation , the transition from PoW to PoS is expected to decrease energy use by 99.95 % ( see Chart 2 ). “ There are no truly sustainable ETP products other than proof-of-stake solutions ,” de Isidro added .
Although ethereum makes a strong ESG use-case , bitcoin still constitutes 40 % of the crypto industry ’ s $ 919bn market capitalisation , according to data from CoinMarketCap , and is the most traded asset among institutional investors .
In April , Swiss ETP issuer Helveteq launched the first carbon neutral ETPs on the SIX Swiss Exchange , the Helveteq Bitcoin Zero ETP ( BTCO2 ) and the Helveteq Ether Zero ETP ( ETH2O ). Despite the successful launch of Helveteq ’ s two carbon neutral ETPs , Katz noted : “ It is not the easiest problem to solve but we must try to be part of this movement and offer our clients sustainable investment solutions .”
The Helveteq website explains that the ETPs have “ mechanisms ” to calculate the carbon emissions emitted as the products grow in size . Subsequently , the carbon use is then compensated by Helveteq ’ s investments in credits of private projects that reduce the carbon footprint of the
28 ESG Unlocked : Europe out in Front October 2022