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Has ESG Influence on Bitcoin?

By ga38jem | Crypto Events | 4 Nov 2021

Do you know what caused the crypto market crash back in May? Most of us would think, China’s crackdown on crypto mining. If you are an institutional crypto investor, your answer would be different. In this article we will talk about the ESG concerns, and we will try to understand why this little word has the power to make or break several different industries.


What is ESG?

Let’s start with the definition of ESG. It has its origins in a letter sent to the CEOs of the world’s largest financial institutions back in 2004. These institutions, the United Nations World Bank and the Swiss government produced a report called “Who Cares Wins” in 2005. This first coined the term ESG. In 2006 this coalition formed a global network of investors called PRI (Principles for Responsible Investors). ESG is essentially a series of criteria which creators believe financial institutions have to examine before making an investment into any company, country or individual.


These criteria fall into three categories: Environmental, Social and Governance, hence ESG. These terms are self-explanatory: Environmental contains includes topics like how much carbon dioxide the company produces or how much green energy does it use. Social criteria include topics like how employees are treated, how much they are paid or topics like gender equality. The governance criteria include stuff like the structures of the companies, how transparent they are or how much influence shareholders have over companies.

With this being said, companies that are on the “naughty-list” of ESG include industries like alcohol, tobacco, gambling, adult entertainment or weapons. One of the biggest companies that are leading this ESG rating is MSCI (Morgan Stanley Capital International). It gives corporations an ESG in the rang of Triple A to Triple C using 37 criteria.


For a long time this score was not taken seriously amongst institutional investors. This changed in January 2020 when Blackrock CEO Larry Fink wrote a letter to the CEOs of all the companies Blackrock is invested in. Why is this so important? Because BlackRock is only the largest asset manager in the world and is invested in just about every major cooperation in every economic sector. This letter continued the wish that all corporations BlackRock is invested in should operate in accordance to these ESG criteria. After this happened, companies got together and standardized these ESG criteria.

Ever since then the ESG criteria have expanded. In a recent interview of “What Bitcoin did” the host spent an hour talking about ESG with Kevin O’Leary. Kevin revealed that almost every single asset manager in the world has an ESG committee of some kind and these take these criteria very seriously. In other words, institutional ESG committees do not care if the company is about to cure cancer. If these companies are using excessive fossil fuels (one of the criteria), they wont get a singly cent from the institutions. According to Kevin the letters have changed the attitude of all the companies which make up the S&P 500 and reshaped the global economy. This is because every CEO that ignores those directives in those letters will also not get a single cent. A good example of BlackRock’s power is the energy sector which is being crushed according to Kevin O’Leary.



As for the crypto crash in May, Kevin pins that to the ESG as well. He believes that Tesla dropped BTC payments not because it would affect its allocation of carbon credits from environmental regulators but because institutional ESG investors threatened to pull the plug on Tesla.


Crypto’s ESG Breakdown

Being aware of how much influence ESG has had on Bitcoin and the rest of the crypto market you might be wondering what ESG inclined institutions are thinking of crypto now that the prices seem to sky rocket again. Starting with the Environmental criteria, it looks like it is starting to get better. This is primarily because of proof of work cryptocurrencies is becoming greener as miners shift to use renewable energy. China’s crackdown on mining has also helped Bitcoin and other POW cryptocurrencies with their ESG scores since oversight of renewable energy us is much easier to do in countries like the U.S. where many mining operations have moved recently. The only real concern left on the environmental side of things is the electronic waste. The computers that are used to mine BTC are only used for this particular purpose and if a new model comes out it is being replaced rather quickly.


Moving further to the second criteria: the social department. What we see here seems like a lot of fun too. Over the past months, there has been a lot of news of cryptocurrency in illicit activity like money laundering. While this might be a great point for anti-crypto politicians, the institutions are not buying it. That is because the institutions have the numbers.


As far as social metrics go, institutions seem to be much more concerned about the volatility risks associated with crypto. Furthermore, there is the concern that a lot of people don’t know what they are investing in. The only other social factor that the ESG is focused on relates to transaction disputes. Like we all know, all crypto transactions are final and can not be reversed. This is something that institutions are not used to. This can be ruled out by third party transactions like the Lightning network.

This brings us to the third and final ESG category: Governance. Obviously BTC has no CEO or board of directors. This wouldn’t be so decentralized, would it? BTC is governed by miners, developers and BTC holders. This structure is a part of the reason what makes BTC so secure because there is no single third party than can be pressured to implement whatever bug or feature you desire. The main governance issue is the lack of regulations around cryptocurrency. Although this is improving, what the institutions are asking for is quite excessive. An example for that is the connection of your crypto wallets to your real-world identity using KYC and automatically track every transaction above a certain amount.



It will be very interesting to see how this ESG rating will change over time for crypto. In fact, there are plans by BlackRock to start influencing the Bitcoin environment by investing in their own BTC mining infrastructure. I am interested to see how this will affect the value of BTC. One thing should be clear now, BTC is the future and it seems like it will not go anywhere any time soon.



Published by ga38jem on


On 4th November 2021

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Hi there! I am a very active person and like to do a lot of sports. One of my hobbies is also the crypto market and I like to write about recent events and trends :)

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