Legal Considerations
in Responsible Investment

In September 2022, the White House issued a report addressing the impact of crypto asset activities on the environment as well as how to mitigate their negative externalities in order to make the crypto industry more ESG friendly.

The rise in popularity of cryptocurrency has drawn attention from the ESG community because generating cryptocurrencies and maintaining their ledgers, or blockchains, uses an enormous amount of energy. Many cryptocurrency transactions are accounted for under a “Proof of Work” (PoW) mechanism, which consumes a tremendous amount of computing power, and accounts for approximately 0.4% to 0.9% of total global electricity usage, exceeding the entire annual electricity usage in certain countries such as Australia and Argentina. In the U.S., total crypto-asset operations comprise approximately 1.7% of electricity usage, equaling that used to power all residential lighting in the country.

The Biden Administration has been studying the effects of the rise of cryptocurrencies on energy usage. On March 9, 2022, President Biden signed Executive Order 14067: “Ensuring Responsible Development of Digital Assets,” which directs the White House Office of Science and Technology Policy to examine how cryptocurrency technologies impact climate change both domestically and abroad. More recently, the White House has been examining the intersection between crypto-assets and climate change and collected its findings in a report titled: “Climate and Energy Implications of Crypto-Assets in the United States” (the “Report”), which it published on September 8, 2022. The Report discusses the considerable levels of energy used to power crypto “asset generation, ownership, and exchange,” and suggests potential remedies for the adverse effects crypto’s high energy usage.

For instance, the Report found that crypto mining contributes to green-house gas emissions, pollution, and noise, and many of these effects disproportionately affect communities of color, low-income communities, and Indigenous communities. Crypto mining operations also produce substantial electronic waste of natural resources such as cobalt, indium, and gold, for which there exists no accepted standard governing their proper disposal. To counter these adverse externalities and pave the way for crypto operations to align with the country’s goal of achieving net-zero emissions by 2050, the Report suggests means by which to recycle the electronic byproducts of natural resources involved in crypto operations, for instance, by using “certified electronics recyclers,” which are designed to maximize reuse and recycling and reduce dangers presented to human health and the environment. The Report further recommends powering crypto-asset operations with renewable energy sources like hydroelectric, solar, and wind power, which would replace the likes of coal and fossil fuels.

Read the White House Report.

The Grant & Eisenhofer ESG Institute will continue to closely monitor the efforts undertaken to make crypto-assets more ESG-friendly.