Bitcoin Meets ESG: Bitcoin’s Emerging Role In Sustainable Investing

“Bitcoin is bad for the environment! It’s an energy hog, and as a proof-of-work blockchain, it emits lots of carbon, even more than Ethereum, jeopardizing environmental advancements and exacerbating climate change.” 

These are some of the negative reports that circulate in the industry.

However, new data around bitcoin unravels BTC’s compelling case and proves there has been a bit of stigma and misinformation regarding bitcoin’s environmental impact. 

This article discusses how bitcoin can be ideal for ESG investors. We evaluate the impact of environmental, social, and governance, dispel some of the misconceptions that still thrive today, and consider how bitcoin stacks up against an ESG framework.

What Is ESG Investing and How Does Bitcoin Fit in?

ESG (Environment, Social, and Governance) is a framework that helps investors determine how an asset manages risks and opportunities in relation to environmental, social, and governance. 

ESG investing is investing in ESG-focused companies or assets. It enables investors to gain financial returns without negatively impacting the environment, society, and governance.

Such investments are challenging to find. Thirty percent of investors say finding attractive ESG investments is a struggle. But believe it or not, bitcoin can be part of an ESG-friendly portfolio. Several reports and papers proving bitcoin is a net positive as an ESG asset have been produced independently by reputable researchers and institutions. 

These reports and papers show how bitcoin can be good for the environment, supports renewable transition, and that there’s been an overestimation of how much energy bitcoin consumes. 

ESG Principles Explained

ESG principles are practices that reflect a commitment to improving environmental, social, and governance issues for responsible or sustainable investments. These principles have gained prominence as investors have grown increasingly socially conscious. 

When making investment choices, asset managers and investors examine the design, delivery, and disclosure of ESG principles. Today, it’s no longer enough for an asset to have good financial results; assets must align with the ESG agenda and perform well in each of the following areas:

Environmental

These are initiatives that align investments and capital flows with low carbon transition. They unlock progressive data on climate transition risks and opportunities in light of growing concerns around climate change and environmental issues.  

These initiatives aim to reduce climate risks – extreme temperatures, hurricanes, wildfires, water scarcity, carbon emissions, pollution, and oil spills. They include:

• Waste reduction and management
• Avoiding the use of plastics
• Lowering greenhouse gas emissions
• Reducing carbon footprint
• Sustainable sourcing of raw materials
• Aligning with the United Nations Global Compact and the UN Sustainable Development Goals (SDGs)

Social

These initiatives are aimed at mitigating issues related to the social aspect to build harmonious and humane relationships with employees, customers, suppliers, and the local communities in which a company operates. Social here also includes respecting human rights.

Social initiatives help mitigate worker strikes, litigations, workplace injuries, and other people-related distractions and can include:

• Respecting human rights
• Proper working conditions 
• Safety precautions in the workplace
• Promoting gender equality in salaries and hiring  

Governance

Governance refers to a company’s conduct at the executive and board of directors levels.  Although governance principles keep evolving, the initiatives strive to meet the expectations and interests of shareholders, employees, and customers. 

For example, in the past, governance focused on serving and protecting shareholders by limiting financial and accounting misconduct as well as legal and regulatory compliance. Today, it includes ethics, transparency, SDGs alignment, innovation, infrastructure, peace, and justice. 

Governance initiatives can include: 

• Transparency of accounting and financial processes
• Frequent audits
• Internal controls to promote transparent and accountable leadership

Addressing ESG Concerns: How Bitcoin Advances ESG Goals

Blockchain, the underlying technology behind cryptocurrencies and bitcoins, uses validation mechanisms that require computing power. However, the amount of energy and how it’s used varies from one blockchain to another depending on design choices. For example, the more recent PoW (proof-of-work) blockchains consume more energy than proof-of-stake blockchains.

But despite the energy requirements, the truth is that bitcoin aligns with and promotes ESG goals, especially regarding environmental sustainability and social impact by:

• Encouraging the use of renewable energy 
• Using underutilized electricity and encouraging investment in green energy  
• Helping with demand response by standardizing electrical grids 
• Repurposing the heat from the mining to power cooling and heating of facilities
• Helping advance financial inclusion

Environmental: Redefining Bitcoin’s Role in Sustainability

Although bitcoin does not emit carbon, it uses dedicated hardware that runs on electricity. It’s this energy used to produce the bitcoins that’s been a hotly debated topic. A previous Harvard report said bitcoin requires vast amounts of power (0.55% of global electricity production). 

However, bitcoin’s significant electricity consumption might offer advantages by utilizing surplus renewable energy from sources like solar and wind. Reports indicate bitcoin is now more eco-friendly than ever, with 54.5% of its energy consumption now being powered by renewable energy.

Additionally, a KPMG report highlights the potential social benefits of bitcoin. It suggests that the cryptocurrency could make small, previously unprofitable electrical grids powered by local renewable energy sources economically sustainable in developing countries, thereby enhancing access to electricity.

The Overestimation of Electricity Consumption

Recent reports have shed a different light on bitcoin’s energy usage, suggesting a reevaluation of its environmental impact. 

Bitcoin mining hardware has undergone a technical evolution. It started with a rudimentary process that leveraged CPUs, then GPUs (Graphics Processing Units), and then FPGAs (Field Program Gate Arrays). Today, most of them use bitcoin ASICs (Application-Specific Integrated Circuits). This hardware has seen a progressive reduction in chip size from 130 nm to 5 nm in recent models. Since the smaller the chip size, the lower the power used, bitcoin mining has substantially reduced power consumption. 

Bitcoin Supporting Renewable Transition

Bitcoin mining’s competitive landscape incentivizes miners to streamline operations and manage production costs by using sustainable energy. Below, we’ll discuss how bitcoin is not only benefiting from, but also contributing to the acceleration of the renewable energy transition, turning perceived risks into opportunities. 

Capturing Potential Energy in Flared Gas 

Methane emissions are much more harmful than carbon monoxide. Each methane molecule traps more heat than carbon monoxide, causing much of the global warming our planet is experiencing. 

Bitcoin mining companies are now capturing flared gas from oil extraction mines and vented methane from municipal landfills and converting it into electricity for bitcoin mining. This gas would otherwise have been released into the atmosphere. 

Recycling Heat To Provide Energy 

Bitcoin mining is embracing a wave of innovation by repurposing the heat from the mining to power state-of-the-art cooling, thermal insulation, and heating of homes, swimming pools, and greenhouses. Bitcoin mining produces significant heat. This heat can be harnessed to heat homes, buildings, greenhouses, and swimming pools. 

Tapping the Energy From the Ocean

There’s potential for bitcoin to pioneer in tapping the energy from the ocean through Ocean Thermal Energy Conversion (OTEC). This technology turns oceans into renewable solar energy by harnessing the temperature differences between the warm topical surface water and the deep, cold seawater. Nathaniel Harman, an oceanographer, bitcoin trader, and founder of Oceanbelt, agrees OTEC technology can provide unlimited renewable baseload energy.    

OTEC plants have been there since 1930. However, no project has succeeded in overcoming the hurdle of progressing from prototype to operational plant — until bitcoin. OTEC and bitcoin mining are symbiotic, enabling the development of a capital-efficient prototype.    

Surplus Renewable Energy Utilization

Due to its continuous energy requirement, bitcoin is often sold as energy-intensive and dangerous to the environment. However, BTC could be a tool to enhance the transition to renewable energy. Its high energy demand could be addressed using surplus renewable energy sources like solar, wind, hydro, and geothermal.

The problem is that nature limits the energy solar panels, windmills, dams, and other renewable energy sources create. Often, the energy is not needed at the time it’s created and it goes to waste. Stats from the Lawrence Livermore National Library indicate that about two-thirds of energy is underutilized. 

However, because bitcoin networks run throughout and can be set up anywhere, and BTC miners can tap into any energy source anytime, they can create a marketplace for this kind of energy (stranded energy). This reduces bitcoin’s environmental impact and creates a more sustainable model by encouraging further investment in clean energy.    

Social Benefits in Developing Countries

A recent KPMG report also suggests that bitcoin mining could play a positive role in developing countries where there’s often a struggle for clean, reliable, and affordable energy. The report proposes that bitcoin could make small, local renewable energy grids economically viable, thereby enhancing access to electricity. 

Many developing countries lack electrical grids, and where they do exist, they often don’t reach the rural areas. Residents in these areas rely on microgrids funded by international organizations like USAID and WHO. These draw energy from wind, solar, and hydro. 

Unfortunately, maintaining the grids eventually becomes financially non-viable due to supply and demand mismatches, causing power supply inconsistencies — or no power supply as they’re forced to shut down operations. That’s where bitcoin mining comes into play. 

Because bitcoin mining can occur anywhere, miners can co-locate within these microgrids, enabling grid operators to monetize the energy and continue to provide electricity to residents. 

Social: Bitcoin’s Positive Impact on Social Equity

As bitcoin continues to gain adoption, it presents some social concerns, especially for vulnerable and low-income communities. Some argue it helps facilitate illegal activity, such as money laundering, and can create financial instability. 

However, bitcoin mining is transforming the lives of individuals and communities in the following ways: 

Financial Inclusion 

Bitcoin is helping break down financial barriers, offering banking services to the unbanked and underbanked populations globally. 

According to a 2021 World Bank report on financial inclusion, 76% of the world’s adult population has a bank account. While these are great strides toward financial inclusion, 2 billion people (about 30% of the population) remain excluded from the financial system. 

Often, it’s women, people living in poverty in rural areas, those who lack financial literacy or valid identification documents, and those who don’t need it. However, in some lands, governments are corrupt and authoritative, imposing capital controls, withdrawal limits, and other restrictions. In such cases, where people’s savings and purchasing power would be subject to hyperinflation, bitcoin provides a way out.   

Replacing Cross-Border Payments Via Money Transmitters

Bitcoin provides an efficient and cost-effective alternative to traditional money transmitters for sending remittances and conducting international transactions. 

This is a significant help for people living in most developing countries where money transmitters like Western Union and MoneyGram charge high transaction and currency conversion fees to receive money from relatives living abroad. 

Additionally, users often must travel long distances to the nearest towns where these money stations are located. In some areas, they also risk being attacked by robbers who target them. 

In contrast, bitcoin transactions only require a cell phone and internet connection, and you can transact from the comfort and safety of your home. Also, the transaction is almost instant and costs much less. 

Governance: Leveraging Bitcoin for Greater Oversight and Clarity

The fact that bitcoin cannot be regulated and it’s easy for users to circumvent capital controls presents governance challenges. However, bitcoin’s robust protocols coded into its design provide enhanced oversight and clarity to ensure it cannot be abused or misused even by those in power. Here’s how:

Decentralization

Bitcoin’s decentralized nature disrupts traditional governance models, leading to more democratic and equitable systems. 

Bitcoin is not regulated by central banks. Its blockchain is decentralized in that rather than a single individual or group having control, all users collectively retain control. That means a user can view all the transactions and track bitcoin wherever it goes. 

Like the TCP/IP protocol, which allows users worldwide to communicate seamlessly over the web, bitcoin’s digital database or ledger runs on the same software version. The data entered is distributed among peer-to-peer network nodes at various locations. 

Unlike your traditional banking model, which works through custodial accounts and all transactions are processed by a central authority, no person or entity owns, manages, or controls the network or structure. Bitcoin system rules, such as coin limits and blockchain size, are built into its code, eliminating the need for an intermediary.

Immutability

Decentralized bitcoin blockchains are immutable. Once transaction information is entered into the blockchain, it’s permanent and cannot be reversed, altered, or modified. 

Each transaction detail added to the ledger is cryptographically linked to previous transactions, forming a blockchain of continuous transaction records. The blockchains are stored linearly and chronologically, and when a new block is entered, the previous one cannot be changed. Any attempts to change it would cause a mismatch. The network would reject the altered block, hindering the ability to transact.

This makes bitcoin immune to data corruption, promoting confidence in the system. Additionally, it’s easy to cross-check and verify transaction details, ensuring transparency.  Even the Department of Justice acknowledges that no warrants or subpoenas are required to access transaction details. 

How Bitcoin Miners Can Reduce Their Carbon Footprint

There are several ways bitcoin miners can help reduce their carbon footprint, including: 

Co-Locating Next to Renewable Energy Sources

Bitcoin mining pool rewards are proportionate to their computing power. However, miners can cut down operation costs by using low-cost sources of electricity: renewable energy. 

Miners can co-locate next to these renewable energy sources, helping to keep renewable energy utilities running and encouraging further investment in clean energy. 

Flexible Demand Load

Bitcoin mining operations can continue to run when energy is limited. Thus, miners can cut back on their usage at a moment’s notice when there is a high energy demand. This energy is returned to the grid, maintaining grid frequency stability. That way, the energy is available to others during periods of high demand or low supply.  

This was evident during a winter storm in 2021 that caused nearly half of Texas to experience blackouts when the state’s electric grid operator lost control of the power supply. Bitcoin miners in Texas cut down on consumption, freeing about 1,500 megawatts that they diverted back to the grid. 

Using Underutilized Energy   

Solar, wind, hydro, and other renewable energy sources are subject to nature’s conditions, often creating energy when there’s no demand. 

However, because bitcoin mining operations run full-time, miners can use this underutilized energy instead of letting such energy go to waste.   

Explore AlphaPoint’s Digital Asset Infrastructure

Bitcoin has continued to gain traction in the mainstream. It’s no longer considered a highly volatile and risky investment only suitable for those with a high risk tolerance. More importantly, it complements an ESG-friendly portfolio, providing several potential solutions to the global energy challenge.

AlphaPoint provides trusted infrastructure powering over 150 exchanges around the world, enabling financial marketplaces, payment networks, and banks to offer digital assets like Bitcoin to their customers.

Learn more about how AlphaPoint’s trusted, scalable, and secure asset digitization and tokenization solutions can elevate your business offerings.