Bitcoin miners may opt for ESG ratings to prove “greenness” as environmental concerns loom over the entire crypto industry.
Environmental concerns regarding the energy-intensive, proof-of-work (PoW) mechanism that Bitcoin (BTC) uses to produce new coins and verify transactions have been front and center lately. Debates regarding Bitcoin’s energy use particularly surged following a tweet sent out by Tesla CEO Elon Musk in May saying that his company would no longer accept Bitcoin payments due to the network’s “increasingly rapid use of fossil fuels.”
Since then, a number of ways Bitcoin mining companies could go green have been discussed, many of which include using 100% renewable energy sources. For example, El Salvador president Nayib Bukele recently disclosed plans for a geothermal power company, letting Bitcoin miners use its facilities to ensure clean mining.
Proof of green potential through ESG ratings
While innovative, these initiatives may be easier said than done. Moreover, if these mechanisms were to be achieved, proof of Bitcoin’s green potential may still be required to show its impact.
In order to demonstrate true energy conservation, Bryan Bullett, CEO of Bit Digital — one of the largest publicly listed Bitcoin mining companies — told Cointelegraph that the company recently submitted for a third-party environmental, social and corporate governance (ESG) review. Bullett noted that the international ESG framework is used by many companies and favored by institutional investors to track and verify companies’ environmental standards and adherence.
Sam Tabar, chief strategy officer of Bit Digital, further told Cointelegraph that the firm may be the only Nasdaq-listed miner that has engaged an independent ESG firm:
“Our ESG rating will be provided by Apex Group ESG Ratings & Advisory, a well-known ESG specialist. Apex met our requirements for an independent process to ensure relevance and consistency surrounding ESG and shares our commitment to creating ESG transparency for investors.”
According to Tabar, once completed, the ESG report from Apex will allow Bit Digital to draw meaningful conclusions to better understand the firm’s ESG performance against international standards and its peers, and then identify areas for improvement, all while tracking progress over time.
It’s important to point out that Bit Digital’s ESG rating is not yet available, as Tabar added that he is not sure when the firm will receive the score. “It’s not up to us, but we are willing to be reviewed. Our miner fleet has been running on a majority of carbon-free energy mix on average, so we expect that will be reflected in our score.”
Will ESG ratings become an ongoing trend for miners?
Although Bit Digital may be one of the first mining companies to undergo an ESG review from a third-party firm, other miners may also choose to do the same.
For example, Rob Chang, CEO of Gryphon Digital Mining — a clean energy Bitcoin mining company — told Cointelegraph that the company is using 100% hydroelectricity to mine Bitcoin. While Chang noted that Gryphon has already achieved 100% carbon neutrality, Brittany Kaiser, chair of the board of directors at Gryphon, explained that an ESG rating will be performed upon the launch of the company’s first mining machines, which is set for the beginning of August. “We have not seen ESG rated yet, as we are pre-operational. However, our electricity source is 100% renewable and we have purchased more than 250x more carbon credits to offset the delivery of our mining machines than the footprint it will create.”
Tabar additionally pointed out that it’s important for publicly listed mining companies to undergo ESG ratings for their shareholder’s knowledge:
“Institutional investors increasingly require transparency on, and compliance with, international ESG standards. Therefore, to attract institutional investment, miners face an imperative to operate sustainably, and to provide consistent ESG metrics to the market.”
While the case for ESG ratings is clear, it may be challenging for Bitcoin miners to obtain an ESG score, as a lot of data must be disclosed. Andy Pitts-Tucker, ESG managing director for Apex Group, told Cointelegraph that the ESG rating process varies based on the provider in question. “For listed businesses or funds, companies are evaluated based on publicly available information such as media sources and annual reports, with scores given for each ‘E,’ ‘S’ and ‘G’ category, alongside an overall score.” He added, “For private companies and their investors, data must be provided by the companies themselves.”
Pitts-Tucker further added that an ESG rating specifically provides a consistent standard against which a company’s ESG performance can be measured. As such, he noted that ESG ratings really gained attention last year, as the global pandemic renewed the world’s focus on risks of all types, including non-financial and ESG factors:
“Companies are now facing increasing pressure from investors, employees and customers to disclose their ESG credentials. Companies now not only want, but need, to show their ESG credentials and compliance as their hands are forced by the implementation of regulations.”
Is Bitcoin an ESG disaster?
Although a recent decarbonization report from Big Four firm KPMG reinstates that ESG ratings are quickly becoming a best practice for companies, some traditional financial service firms consider a Bitcoin ESG to be near impossible.
For example, Benefit Financial Services Group, a registered investment advisor for both institutions and individuals, recently published a blog post on the challenges of obtaining a Bitcoin ESG score. Unsurprisingly, the post mentions that by nature, Bitcoin mining is an “undeniable environmental offender.” As such, the entire document slams Bitcoin for being unethical and harmful toward the environment.
While this may be a common opinion, Sam Wyner, cryptoasset services director and co-lead at KPMG, told Cointelegraph that in some cases, Bitcoin mining operations may be better positioned than larger organizations for an ESG score since they are typically smaller, more focused and, therefore, more agile:
“They will face the same challenges any corporation trying to obtain an ESG rating would face: Organizational maturity, when it comes to ESG and availability, and granularity of the data needed to support the rating. This is something even the largest corporations currently struggle with. And, like any corporation going through this for the first time, there is always the risk that the rating comes back less favorable than desired.”