Crypto products that tick all the ESG boxes are fast becoming hot commodities for institutional investors, driving blockchain-focused venture capitalist funds and hedge funds to adopt sustainable products and technologies.
As cryptocurrencies such as Bitcoin and Ethereum rise in popularity, many believe the energy footprint of the crypto industry is unsustainable at its current pace, leading investors with a focus on environmental, social, and governance (ESG) issues to become hesitant about digital assets, despite the potential profits.
However, carbon-neutral and ESG-friendly crypto investment vehicles have emerged, and institutions, pension funds, and family offices are getting in on the action, according to Charlie Morris, co-founder and managing partner at CMCC Global.
“Looking at ESG principles, Bitcoin and Ethereum and other leading cryptocurrencies already address the ‘S’ and the ‘G’ pretty well — bringing banking to the unbankable, [using] a sovereign currency not tied to the printing presses of any one particular government,” Morris said. “The evolution from proof of work to proof of stake and less energy-intensive consensus algorithms will bring blockchain into compliance with the ‘E’.”
“In 50 years’ time, this will look like a kind of a blip in history, where we started out with processing intensive systems, and then quickly migrated to much more environmentally friendly systems,” said Morris.
Over the last few years, CMCC global – one of Asia’s first venture capital companies to focus solely on blockchain investments – has only invested its clients’ capital into energy-efficient blockchains. It was an early investor of Cosmos and Solana, major competitors to Ethereum and rising stars in the crypto space.
Blockchain is moving away from energy-intensive algorithms to methods that are 99% more energy-efficient, Morris said. He noted that the entire industry is moving towards ESG.
For instance, blockchains like Bitcoin and current-state Ethereum presently utilise proof-of-work algorithms, which must be solved by computers through cryptographic calculations in order to mine the BTC tokens. Proof-of-work is very energy-intensive, and this can pose a problem for institutional investors with an ESG mandate.
“Some of the fears around Bitcoin’s carbon footprint are a bit misguided,” Alex Tapscott, managing director of Canada-based alternative investment manager Ninepoint, told AsianInvestor. “Almost half of the energy input for the network actually comes from renewables. But half of a big number is still a big number.”
Ninepoint launched the first ESG-compliant Bitcoin ETF back in April 2021. The ETF — which trades under the ticker BITC on the Toronto Stock Exchange — sets aside a portion of its management fees to offset 100% of the carbon footprint of the Bitcoin held in its ETF. Since the launch of BITC, its net asset value has grown to over US$81.5 million.
The BITC ETF is available on the open market, making it difficult to ascertain who exactly is buying in currently, said Tapscott. “From meetings I’ve taken with our portfolio managers, I can say that there are plenty of institutions and family offices in this vehicle. And I think they care more about the ESG component than the average retail investor.”
Sustainable investment is soaring to the top corporate and institutional agendas. Recently, the Caisse de dépôt et placement du Québec (CDPQ) disclosed a new plan to fight the climate crisis, aiming to have a net-zero portfolio by 2050.
“In Canada, the CDPQ just announced that they are phasing out carbon exposure completely – and if a fund like that wanted Bitcoin exposure, we'd really be the only vehicle they could invest in,” said Tapscott.
Other funds are emerging, although with less direct exposure to Bitcoin. Earlier this year, US-based asset manager Viridi Funds launched the actively managed Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF, which goes by the NYSE ticker RIGZ and invests in the cryptocurrency mining and mining hardware industries. RIGZ was created to align profit with purpose, in order to serve the growing number of investors keen on gaining exposure to cryptocurrency markets but who also value environmental sustainability.
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