How the crypto asset industry can embrace ESG standards
May 09, 2023
We are delighted to launch Paysafe’s A green future: How the crypto asset sector can embrace ESG report, which marks a first for the industry. The report, published in conjunction with leading international law firm Clifford Chance, provides an overview of environmental, social and corporate governance (ESG) aspects in the UK landscape, including why they are important and where progress can be made.
The report also analyses consumer attitudes towards ESG issues and why consumer demand calls for greater attention to be given to ESG factors in investing in crypto and, indeed, for payments products in the metaverse. It looks at the current legal and regulatory requirements on ESG and provides an overview of potential future requirements.
With all these elements in mind, the report puts forward several policy recommendations that can help support the transition of the crypto industry to net zero, addressing climate change risks as well as achieving ESG objectives.
Lastly, the report proposes some measures that might be taken to help the UK maintain its position as a leading global hub for technology and innovation in the UK.
Background to the report
One in five adults in the UK have said they own a cryptocurrency. Globally, cryptocurrency ownership hit a record 425 million users in 2022 and the industry is expected to be worth almost $5bn by 2030, a far cry from the launch of Bitcoin in 2009.
There are now more than 22,000 different cryptocurrencies in circulation, with the industry seeing institutional support and widespread acknowledgement culturally and societally. The Financial Conduct Authority, for instance, has noted that more than three quarters of UK adults have heard of cryptocurrencies.
As this interest has grown in the sector, so has scrutiny of it, from regulators and politicians but also consumers themselves. A 2022 study found that male millennials (the cohort typically born between 1981 to 1996) were the biggest adopters of cryptocurrency. This demographic is concerned with ESG requirements and in at least one survey millennial respondents put ‘climate change’ ahead of concerns around unemployment.
Why the cryptocurrency industry should embrace ESG
The good news is that sustainable digital finance and impact investing have existed for many years, with the financial services and payments industries seeking to integrate ESG factors into all aspects of their offerings.
If crypto is to be a credible player and a mature payments industry actor, it will need – alongside regulation – to incorporate ESG factors into all aspects of its offering, given the important role ESG plays in the wider payments and financial services ecosystem.
There is also an increasing need for businesses to consider how ESG can be built into the foundations of the so-called metaverse as both companies and consumers will increasingly spend more time accessing Web 3.0 and technologies associated with it when that is launched, including virtual worlds and augmented reality experiences.
As with the financial services and payments sector, it is crucial that the crypto industry and metaverse align with ESG standards and seek to meet net zero ambitions, sustainability, and social enterprise goals.
Summary of recommendations
- We encourage wider collaboration between the crypto industry and the wider financial services and payments industry on ESG;
- Investors in cryptoassets should be able to easily make ESG-informed decisions from the outset of their crypto dealings and activities;
- As the metaverse develops and plays an increasingly larger role in society, we strongly encourage ESG conditions and principals to be considered as a fundamental base of the augmented, mixed and virtual reality worlds that it comprises, with an emphasis on social inclusion and responsible governance;
- Regulatory and governmental bodies should encourage the consistent use of ESG metrics to allow greater consistency across jurisdictions and industries;
- For the UK government to achieve these goals, we propose the appointment of a specialist ESG and Technology Minster who would have a cross-departmental role.
ESG needs to be embedded into the foundation of new technologies and future financial ecosystems. A five-point plan of inter-industry collaboration, investor evaluation, responsible governance and social inclusion, regulatory support with consistent standards and government involvement will be key steps in ensuring that ESG features in the future of the crypto industry both in the UK and globally.
Implementing these recommendations would assist the UK with becoming a global crypto hub, whilst continuing to be a world leader in ESG standards – a vision that the UK notably restated when it hosted COP26. With ESG under scrutiny at a time of growing global instability, now is an opportune time to act.
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To download our new report visit: A green future: How the crypto asset sector can embrace ESG report