ESG stands for “Environmental, Social, and Governance.” Investors and financial analysts increasingly use these three factors to evaluate the perceived sustainability and ethical impact of an investment in a company or business.
KPMG, one of the Big Four accounting firms, alongside Deloitte, Ernst & Young (EY), and PricewaterhouseCoopers (PwC), is globally recognized for their professional services spanning audit, tax, and advisory work. Much of their advisory work has encompassed ESG-related recommendations and analysis.
Much of the anti-Bitcoin narrative has come from the Big Four, who have sought to discredit Bitcoin as an asset class by labeling it as a bad investment for anyone who purports to care about ESG analysis scores or standards.
Enter KPMG’s new 12-page report titled “Bitcoin’s role in the ESG imperative,” which seeks to debunk many of the misinterpretations and shed light on the positive environmental, social, and governance (ESG) impacts of Bitcoin.
The 12-page report delves into the unique opportunities presented by Bitcoin and innovative strategies that generate value and inspire trust among stakeholders. It serves as a comprehensive guide to understanding Bitcoin’s mining mechanism, addresses prevailing misconceptions, and showcases creative approaches to integrating Bitcoin into the ESG journey.
The report starts with an honest assessment of the Bitcoin mining industry. It outlines four strategies to reduce its carbon footprint, all of which are efforts already being made and championed by the Bitcoin mining industry. It goes on to outline the various ways Bitcoin can help further social inclusion and provides an overview of the governance of Bitcoin. In conclusion, stating that:
“Bitcoin appears to provide several benefits across an ESG framework.”
Bitcoin mining is a complex yet integral part of the Bitcoin network. It involves solving mathematical problems using a Proof-of-Work (PoW) consensus mechanism to add transactions to the blockchain. Mining secures the network, prevents double-spending, and incentivizes participants through block rewards and transaction fees. But the implications of this process, particularly on the environment, have been a cause for concern and misunderstanding.
The energy consumption involved in Bitcoin mining often paints a grim environmental picture. But the KPMG report posits a different narrative, highlighting how the need for energy efficiency in mining operations can drive renewable energy solutions. Bitcoin miners, who are continually searching for low-cost electricity, can locate their operations near renewable energy sources like wind and solar farms. They provide a flexible load, adapting their consumption to the ebb and flow of supply and demand. By tapping into periods of excess energy supply or low market demand, Bitcoin miners can facilitate further expansion of renewable energy projects.
The State of Texas, for instance, hosts a significant portion of Bitcoin mining operations, primarily due to its vast renewable energy production. The symbiosis between Bitcoin miners and renewable energy projects can drive more sustainable energy use and reinforce Bitcoin’s role in the green revolution.
Despite Bitcoin’s pseudonymous nature and absence of Know Your Customer/Anti-Money Laundering regulations, the report debunked the idea that it largely facilitates illicit activities. In 2022, only 0.24% of total crypto transactions were associated with illegal activity, a far cry from the 2-5% of global GDP used for money laundering, according to the United Nations Office on Drugs and Crime.
Bitcoin also offers significant social benefits. For countries heavily reliant on remittances, Bitcoin’s ability to enable quick, low-cost, cross-border transfers can drastically change the financial landscape. Residents of developing countries like Honduras, Haiti, Jamaica, and El Salvador can avoid high transaction fees, lengthy wait times, and potential security risks associated with traditional money transmitters.
Similarly, in regions like rural Africa, where a substantial population lacks access to electricity, Bitcoin miners can play an unexpected role. They can co-locate within microgrids, which are often financially unstable due to supply and demand mismatches, allowing operators to monetize otherwise wasted energy.
Furthermore, Bitcoin’s promise of financial inclusion cannot be understated. In countries where access to banking services is restricted or non-existent, Bitcoin serves as a decentralized, immutable alternative. It allows people to participate in the financial system, bypassing intermediaries and potential governmental restrictions.
The report also emphasized Bitcoin’s inherent governance model. Bitcoin is governed by a set of rules designed into a protocol. The rules are resilient to abuse or misuse by those in power or with ulterior motives. The Block Size Wars of 2017 exemplified how Bitcoin’s governance mechanisms resist unauthorized alterations, thereby maintaining the network’s integrity.
In conclusion, KPMG’s report underscores Bitcoin’s potential benefits across the ESG spectrum. Whether aiding the transition to renewable energy or serving as a tool for those in authoritative regimes or high inflation areas, Bitcoin continues to showcase its multifaceted value. As the technology and its usage evolve, new innovative applications will continue to emerge, further shaping the narrative around Bitcoin and its role in the ESG framework.
We can’t help but wonder if BlackRock paid for this study, but, we must admit, we don’t particularly care where the funds or motivation for a change in the narrative have come from; we are just happy to see it.