The idea of environmental, social and governance (ESG) standards, in theory, is beautiful. But those standards can quickly run into obstacles when growth is demanded.
Furthermore, ESG efforts are sometimes complicated by greenwashing, where a company presents itself to the public as being more eco-friendly than it actually is. If you examine the largest ESG-mandated exchange-traded funds (ETFs), for example, it may not be long before you see a company listed that violates one of the fund?s ESG criteria. Clients with an ESG mandate may point to various companies that don?t fit their goals, get frustrated and vent to you.
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How can we break that cycle? If you guessed bitcoin, congratulations! In my view, bitcoin is one of the most ESG-friendly options for clients to bring about a better world in the future. I?ll explain by going through each pillar of ESG, addressing common concerns about bitcoin and highlighting how bitcoin aligns with ESG principles.
Environmental
You have likely read or heard in passing how bitcoin?s network uses more energy than small countries and how it?s harmful to the environment. But that narrative is inaccurate.
First, energy consumption is not evil in and of itself, and humans? increasing energy consumption has helped improve the quality of life over the last 100 years. The goal of energy consumption is not to be wasteful but rather to use sources that are clean or renewable.
According to the Bitcoin Mining Council?s Q2 2021 Global Review, 56% of the energy used to power the Bitcoin network is renewable. Bitcoin mining companies do have a financial incentive to lower their energy costs and be sustainable. In a memo in April, ARK Funds, led by Cathie Wood, and Square Crypto, led by Steve Lee, elaborated on research into how the Bitcoin network will lead to the growth of renewable energy. They made the case that bitcoin will likely do more than any government subsidy or program to grow renewables.
The mission of one U.S.-based company, Great American Mining, is to work within the oil and gas industry, helping producers that flare gas from oil wells to mine bitcoin and lower carbon emissions. That allows various energy companies to add revenue while improving their carbon footprint. Without tapping into that wasted energy, more emissions are unavoidable.
And suppose you look at the total energy used from bitcoin?s network, compared with the total energy consumed worldwide. In that case, it is less than one-tenth of one percent, as Lyn Alden, a global macroeconomic strategist, noted in a recent piece. Alden explained that Christmas lights and dryers are using more energy per year than bitcoin, but I have yet to hear calls for energy to stop being consumed for those uses.
Lastly, a question that should be asked is, how much more environmentally friendly is bitcoin from the traditional system? In a piece in Bitcoin Magazine in May, former engineer and bitcoin mining expert Hass McCook noted that bitcoin mining emits less than 5% of the legacy financial sector?s carbon emissions. In context, energy consumption should not be as great of an issue for bitcoin as is often depicted. The facts don?t follow the mainstream narrative.
Social
On Sept. 7, El Salvador officially rolled out bitcoin as legal tender and provided $30 worth of bitcoin to each of its citizens. Large legacy financial institutions like the International Monetary Fund and the World Bank criticized the move as rash and irresponsible. But bitcoin arguably offers the fairest and most equable form of money in human history. Some 70% of the citizens of El Salvador are unbanked according President Nayib Bukele, and yet most have a phone. Accordingly, they can use a mobile bitcoin wallet, which is now plugged into a worldwide monetary system.
Because the supply of bitcoin is capped at 21 million, foreign leaders cannot make decisions that affect the savings of Salvadorans. Bitcoin holders rely on a decentralized network and code to secure their wealth. Bitcoin and the layer 2 Lighting Network allow all global citizens, from El Salvador to many countries in Africa, the opportunity to secure long-term wealth protected from inflation, with bitcoin also being a means of payment via Lighting Payments that settles almost instantaneously.
Many people in lower-income rungs can?t save into 401(k)s and investment brokerage accounts. If they keep their earnings into a bitcoin wallet versus a traditional bank account, they?ll see their savings grow instead of dwindling in purchasing power.
If adopted more widely as a global currency, bitcoin has the potential to do more for social justice than any government program or stimulus checks. It would allow people to regain financial freedom, work, save and live within their means and pass down wealth from generation to generation.
Governance
Rules without rulers ? what is fairer than that? S&P Global defines the ?G? in ESG as ?the governance factors of decision-making, from sovereigns? policymaking to the distribution of rights and responsibilities among different participants in corporations, including the board of directors, managers, shareholders and stakeholders.?
Bitcoin has no decision-makers. Bitcoin is for all, and whether you have 0.00001 BTC or 10,000 BTC, the rules are the same, and you have the same benefits. There is no insider information ? Bitcoin is open-source for all to review and see. The power and gravity of that are critical. Bitcoin does not discriminate by faith, sex, creed, gender ? or anything. And the network is fiercely defended by those who value freedom, hence the term ?freedom money? (which I prefer over ?magic internet money?).
Because it removes leaders from the equation, the ability to discriminate against others cannot happen with Bitcoin. If you have a mobile phone and Wi-Fi (or a satellite connection), you can plug into one of the most incredible and fair monetary systems ever created.
Bitcoin in the future
Though ESG has had its critics, you would be hard-pressed to find someone who?s against what ESG tries to stand for ? fairness, inclusion and transparency. Bitcoin not only accomplishes everything that the ESG movement wants, but it also takes it one step further, offering an ideal model for companies and individuals. Bitcoin holds the promise of helping usher in sweeping changes over the next decade and beyond ? and to help your clients get involved, it?s as easy as holding bitcoin.