ESG Investors Own Crypto Despite Environmental Concerns

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Cryptocurrency is associated with some practices that are not good for the earth. But that’s not stopping many investors who care about social and environmental issues from investing in bitcoin, ether and other digital assets.

A staggering 96% of investors who have ESG (environmental, social and governance) assets in their portfolios are aware of environmental concerns around cryptocurrencies, according to a new survey by digital investment adviser Betterment. But that’s not stopping them from buying it: 80% of those with ESG-themed investments also hold crypto, the survey found.

For comparison, only 22% of investors who do not have ESG investments own crypto. The online survey was conducted in April and included 1,000 US investors.

“Because we believe that cryptocurrencies as an asset class are here to stay, it is worth taking sustainability concerns around cryptocurrencies seriously, particularly as they scale,” Boris Khentov, senior vice president at Cryptocurrency, wrote in a report. strategy of sustainable products and investments in Betterment. that accompanied the survey.

Meanwhile, ESG investors seem to be trying to have their cake and eat it too.

ESG investing and cryptocurrency boom

ESG investing is a term that describes investments that comply with environmental, social and governance factors (also known as non-financial factors that are not traditionally taken into account when assessing the value of a stock or bond). And it’s very popular right now.

Investors poured nearly $70 billion into US sustainable funds in 2021, a 35% increase from 2020, according to Morningstar.

The strategy has attracted many younger investors who, faced with daunting issues like climate change, seem to want to support brands and corporations that prioritize concerns about the environment, diversity and more. The Betterment survey found that 54% of Gen Z and Millennial respondents said they invest in ESG assets, compared to 25% of Gen X and 42% of baby boomers.

Investment in cryptocurrencies has also skyrocketed in recent years, with the value of the crypto market jumping from $965 billion to $2.6 trillion in 2021. Cryptocurrencies have suffered a massive sell-off recently, but these digital assets don’t seem to be going anywhere. in the short term. .

However, the two types of investments do not exactly go hand in hand. Bitcoin mining, which involves computers solving complicated mathematical problems to create new bitcoins, has especially faced a ton of backlash for its negative environmental impact. The electricity use of the bitcoin network is almost the same as that of the state of Washington, the new york times reported last year.

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Why do ESG investors also own cryptocurrencies?

There is no definitive answer as to why ESG investors own crypto. But one factor that could be at play is that ESG investors are not single interested in investing with your securities. They may also like the idea of ​​exposing their portfolios to innovative asset classes that are in some cases still in development, which is certainly the case with cryptocurrencies, Khentov told Money via email.

Furthermore, not all crypto assets have the same impact on the environment. Bitcoin mining uses a lot of energy through a process called proof of work. But proponents of proof-of-stake, an alternative process for creating new crypto tokens, say it uses far less power. Ethereum, the network that powers ether (the second largest cryptocurrency by market value after bitcoin), is moving from proof-of-work to proof-of-stake.

Perhaps crypto investors who care about the environment are doing their research and deciding to invest money in digital assets that are more environmentally friendly.

“These ESG investors are educated and intentional about their investments, spending time making sure they align with their portfolio,” says Khentov. “It follows that they would apply this type of due diligence and broader lens to other asset classes as well, and educate themselves on the nuances of the technology.”

These investors may also be aware of sustainability challenges and interested in moving the space forward, Khentov adds. The survey found that 90% of those who invested in cryptocurrencies said that it was important for major cryptocurrencies to become more environmentally friendly.