Demand for environmental, social and governance (ESG) investments is accelerating and several key trends are emerging, from climate change to social unrest. The coronavirus pandemic, in particular, appears to have intensified discussions about the interdependence of sustainability and the financial system.
Blockchain has become a powerful and transformative technology in the 4th industrial revolution and is used in an ever-widening range of industries, but its energy footprint has been deemed unsustainable at the current rate. As a result, many ESG-focused investors are still reluctant to participate in this new technology, despite the potential benefits.
2021 is the year ESG investing propelled the biggest shift in capital allocation, and ESG considerations are guiding business decisions in ways that have never been seen. The company’s one-stop bottom line, profit at all costs, is becoming a “triple bottom line” focused on people, planet and profit.
“When investors arrive, they look for an opportunity to invest in an ESG-compliant company before they allocate funds to a specific proposal, project, opportunity, company or business,” said Stefan Rust, CEO and co-founder of Sonic Capital and HydrogenX. , in an interview with Forkast.News.
According to the latest Bloomberg Intelligence ESG Mid-year 2021 outlook report, ESG assets are on track to exceed $ 53 trillion by 2025, which represents more than a third of the $ 140.5 trillion in global assets under management forecast. Bloomberg Intelligence also reported that the S&P 500 ESG Index has outperformed the S&P 500 Index since the start of the year by around 15%.
Despite the bad press, blockchain-based technology and business solutions show significant potential to positively impact society and the environment, and products are hitting the market for the ESG-focused investor.
Blockchain for the planet
The 17 United Nations Sustainable Development Goals (SDGs) aim to address the most pressing global challenges. Climate action is one of them, and the UN target demands a strict reduction in greenhouse gas emissions as well as climate adaptation action or take steps to prepare for the effects of climate change and expected impacts in the future.
Together with Zurich-based Tavis Digital, Sonic Capital launched Sphere, a new investment product that uses the United Nations Sustainable Development Goals framework as a guide while applying ESG investment criteria.
According to Rust of Sonic Capital, a green blockchain industry is evolving. While the market is still nascent, Sphere sees an endless capacity for growth. Its potential is becoming increasingly evident with the rise of blue chip companies entering the space and their desire for a more fluid, efficient and transparent market.
“We break down ESG into three compartments: energy, carbon and other, and if you combine all of these ESG activities, you see a significant movement of companies and businesses into these categories, from all the big tech companies to the multinationals, as well. than local governments trying to move this forward and align this with the 17 SDG goals that the UN has stipulated, ”said Rust.
In Asia in particular, Rust sees sustainable investing largely driven by government support and an effort to foster greater inclusion of groups traditionally under-represented in markets.
“In China, it’s a big mandate. It’s huge. In Korea, the premium for being ESG or SDG compliant is very high, higher than anywhere in the world, ”said Rust. “The more developed markets are very optimistic about this and are taking proactive steps in this direction.”
Through Sphere, investors can capitalize on growing opportunities in the sustainable economy and technology sector by identifying blockchain protocols with positive environmental impact.
“We truly believe in the potential and future of blockchain technology applications impacting impact and their ability to generate positive impact on society and the environment,” said Christian Speckhardt, Partner at Tavis Digital and veteran of impact investing in an email to Forkast.News.
Blockchain is poorly understood
Bitcoin’s blockchain carbon footprint has become a growing concern for environmentally conscious investors. In fact, the recent crypto market crash began in mid-May, when Elon Musk suddenly said Tesla would no longer accept Bitcoin as a form of payment due to environmental concerns.
Blockchains like Bitcoin operate on proof of work algorithms, which must be solved by computers through cryptographic calculations in order to mine BTC tokens. The energy required by miners for these calculations results in high energy consumption.
However, Sphere will focus on investing in the proof of stake blockchain. Staking is estimated to use 99.9% less energy than existing proof-of-work systems. This allows investors to profit while helping the industry move towards greener solutions.
Despite the emphasis on proof of stake, Rust argued that there was actually a lot of misconception in the industry regarding proof of work.
“About 60-70% of the electricity consumed by proof-of-work networks actually comes from renewable energy sources or even wasted electricity that won’t be pumped into the grid,” Rust said. “Essentially, Proof of Work is a lot more environmentally friendly than a lot of people think. “
Sphere is an actively managed certificate (AMC), which are bank securities that can be purchased through a Swiss International Securities Identification Number (ISIN). Investors will be able to participate in impact-related blockchain technologies through their respective crypto assets, which offers the potential for price appreciation in addition to stake rewards, according to Sonic Capital.
The AMC also removes the intricacies of the crypto world for new investors and provides a fixed ramp. By providing the bank with Sphere’s ISIN, investors can subscribe directly through an existing bank account, which is comparable to buying traditional stocks.