Crypto Global

Investing sustainably: The ESG approach

The financial industry is currently in a process of discovery, just like the food industry with the “organic” label years ago. The application of ESG criteria is one of the best known and most widespread approaches under the umbrella term of sustainable investing.

What exactly are the ESG criteria? ESG stands for Environment (environment), Social (society) and Governance (company management).

  • "Environment": Climate change is not only an environmental problem, but also an economic threat. The criterion takes into account the extent to which a company or state pollutes the environment, emits greenhouse gases or pollutants, consumes resources or uses energy efficiently.
  • "Social": The top priority is respect for human dignity. On the one hand, the criterion takes into account the situation of e.g. employees, team, occupational safety, etc., secondly, the consideration of the value chain and thirdly, the social commitment of the investment.
  • "Governance": This term includes fairness and transparency. Transparent information on investment topics should make it easier for investors to identify the company's risks. This criterion examines the extent to which the company assumes responsibility for the respective effects of its entrepreneurial activities.

ESG criteria have the character of exclusion: If certain values ​​and criteria are not observed when making an investment, they can be excluded from the investment portfolio.

The practice of ESG began in the 1960s as socially responsible investing, with investors excluding stocks or entire industries from their portfolios based on business activities such as tobacco production or involvement in the apartheid regime in South Africa.

However, ESG issues were first mentioned in the 2006 United Nations report on the Principles for Responsible Investment (PRI). Over 3,500 companies [as of 2021] have signed the PRI to date, collectively managing over $110 trillion. The ESG approach thus no longer belongs in the philanthropic corner, but is increasingly seen as a practical necessity for long-term financial success.

According to the FNG market report, the market for sustainable investments is growing rapidly. More and more money is flowing into products with ESG criteria. In 2018 it was still 219 billion euros in Germany, but in 2019 the investment volume rose by around 23% to 269 billion euros.

How to evaluate Bitcoin from an ESG perspective?

As countries and states move towards net zero and more renewable energy sources, the supply element could become more unstable. Bitcoin miners can help fix this by becoming a source of what's known as " interruptible loads". This allows miners to switch off their demand at short notice to keep supply and demand in balance. In this way, miners create a stable and flexible base load in the network and also use excess energy. Incidentally, this year PwC Switzerland published an interesting report on Bitcoin mining from the point of view of ESG strategy and its implementation.

When it comes to social, one of the guiding principles of the crypto landscape, especially Bitcoin, is that everything is open source and available to everyone. Additionally, most of the world's Bitcoin mining facilities are located in rural areas, helping to reverse the trend of young people leaving their areas for lack of financially rewarding employment. Bitcoin mining has the potential to empower local communities, enabling them to become economically self-sufficient and create prosperity.

In terms of governance, Bitcoin has a surprisingly good record as part of a decentralized, transparent, autonomous blockchain. No centralized entity is in control of the network. This network is a far cry from the centralized world we live in today, where a few individuals make policy decisions that affect us all and our daily lives.

Ultimately, Bitcoin helps protect the environment by developing and expanding renewable energy, helping the unbanked become financially inclusive, and providing a fair global monetary system. It's the perfect example of ESG investing. Investing in green, social and humane asset classes is not only better for your conscience, but also more profitable in the long run.