Environmental concerns about the energy-intensive proof-of-work (PoW) mechanism Bitcoin (BTC) uses to create new coins and verify transactions have been at the fore lately. Debates over Bitcoin’s energy consumption particularly increased after a tweet from Tesla CEO Elon Musk in May saying 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 involve the use of 100% renewable energy sources. For example, El Salvador’s President Nayib Bukele recently announced plans for a geothermal company that would allow Bitcoin miners to use its facilities to ensure clean mining.
Evidence of the green potential through ESG ratings
While these initiatives are innovative, they may be easier said than done. Should these mechanisms be achieved, proof of Bitcoin’s green potential may still be required to show its effects.
To demonstrate real energy conservation, Bryan Bullett, CEO of Bit Digital – one of the largest publicly traded Bitcoin mining companies – told Cointelegraph that the company recently filed a third party environmental, social and corporate governance (ESG) audit. Bullett noted that the international ESG framework is used by many companies and preferred by institutional investors to track and review corporate environmental standards and compliance.
Bit Digital’s chief strategy officer, Sam Tabar, told Cointelegraph that the company may be the only Nasdaq-listed miner to hire an independent ESG firm:
“Our ESG rating is provided by Apex Group ESG Ratings & Advisory, a well-known ESG specialist. Apex has met our independent process requirements to ensure relevance and consistency around ESG and shares our commitment to create ESG transparency for investors. ”
According to Tabar, the Apex ESG report, once completed, will allow Bit Digital to draw meaningful conclusions to better understand the company’s ESG performance compared to international standards and its competitors, and then identify areas for improvement while at the same time the Progress is tracked over time.
It is important to note that Bit Digital’s ESG rating is not yet available as Tabar added that he is not sure when the company will receive the rating. “It’s not up to us, but we’re ready to be checked. Our miner fleet is operated on average with a large part of the CO2-free energy mix, so we expect this to be reflected in our assessment. ”
Are ESG ratings becoming an ongoing trend for miners?
While Bit Digital may be one of the first mining companies to undergo an ESG review by a third party, other miners may choose to do the same.
For example, Rob Chang, CEO of Gryphon Digital Mining – a bitcoin mining company for clean energy – told Cointelegraph that the company uses 100% hydropower to mine bitcoin. While Chang noted that Gryphon is already 100% carbon neutral, Brittany Kaiser, Gryphon’s chairman, stated that an ESG rating will be carried out when the company’s first mining machines are launched, scheduled for early August. “We haven’t seen an ESG rating yet as we are still before surgery. However, our power source is 100% renewable and we have acquired more than 250 times more CO2 certificates to offset the delivery of our mining machines than the resulting footprint. “
Tabar also noted that it is important for public mining companies to get ESG ratings based on the knowledge of their shareholders:
“Institutional investors are increasingly demanding transparency and compliance with international ESG standards. In order to attract institutional investment, miners must therefore operate sustainably and provide the market with consistent ESG metrics. “
While the case for ESG ratings is clear, getting an ESG score can be difficult for bitcoin miners as there is a lot of data to be disclosed. Andy Pitts-Tucker, ESG managing director of Apex Group, told Cointelegraph that the ESG rating process differs from one provider to another. “In the case of listed companies or funds, companies are rated on the basis of publicly available information such as media sources and annual reports, with an overall score of ‘E’, ‘S’ and ‘G’ being awarded for each category. He added: “For private companies and their investors, the data must be provided by the companies themselves.”
Pitts-Tucker added that an ESG rating specifically provides a unified standard by which a company’s ESG performance can be measured. As such, he noted that ESG ratings have really gained attention over the past year as the global pandemic renewed the global focus on risks of all kinds, including non-financial and ESG factors:
“Companies are now facing increasing pressure from investors, employees and customers to disclose their ESG credentials. Companies don’t just want and need to prove their ESG credentials and compliance now, as their hands are forced by the implementation of regulations. “
Is Bitcoin an ESG Disaster?
Although a recent decarbonization report by the big four company KPMG again found that ESG ratings are fast becoming a best practice for companies, some traditional financial services companies consider a Bitcoin ESG to be near impossible.
For example, the Benefit Financial Services Group, a registered investment advisor to institutions and individuals, recently published a blog post about the challenges of getting a Bitcoin ESG score. Unsurprisingly, the post mentions that Bitcoin mining is inherently an “undeniable environmental sinner”. Therefore, the entire document criticizes Bitcoin as unethical and harmful to the environment.
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While this may be a common belief, Sam Wyner, Cryptoasset Services director and co-lead at KPMG, told Cointelegraph that bitcoin mining operations might in some cases be better positioned for an ESG score than larger companies as they usually are are smaller and more focused and therefore more agile:
“You will face the same challenges that any company seeking an ESG rating will face: organizational maturity when it comes to ESG and availability, and the granularity of the data required to support the rating. Even the largest corporations are currently struggling with this. And as with any company that is going through this for the first time, there is always the risk that the rating will come back worse than desired. “