Discover more from ESG on a Sunday
Week 7: War, peace and bitcoins
In this issue: ▸ Making peace with nature ▸ We break, we repair ▸ Bitcoin from an ESG perspective ▸ Bitcoin is a dirty business ▸ Crypto for social good ▸ And more...
I hope everyone is well and ready for a new edition of “ESG on a Sunday”.
Making peace with nature
This week we start with the word “peace”.
It’s a strange word to write since most of us fortunately don’t feel that we at war. Or don’t even know that we are, or know with whom we are at war.
Yes, we are in the midst of global pandemic, life as we know it is no more and new frontiers of relationships, work and life, systems and consequences, lay unknown in front of us. But war? Seriously?
What got me to flinch at this, having thought about it many times before, is the title of this UN report which was released a couple of days ago.
The report is entitled Making Peace With Nature.
The report strikes a heavy blow against the current state of affairs in the world. Yes, the UN loves to publish reports and send long and often very diplomatic messages about how we should improve things. But this one is more of a sledge hammer.
If you scroll down and pass the forewords, preface, the thank you this and that, you find five key takeaways, and one sentence that sort of does not take any hostages:
“The current mode of development degrades the Earth’s finite capacity to sustain human well-being.”
I read this sentence again and again. Current mode. Degrades. It’s not ‘potentially’ or ‘maybe’. It’s more like ‘this is how it is’.
I read the following sentences slowly:
“Over the last 50 years, the global economy has grown nearly fivefold, due largely to a tripling in extraction of natural resources and energy that has fuelled growth in production and consumption. The world population has increased by a factor of two, to 7.8 billion people, and though on average prosperity has also doubled, about 1.3 billion people remain poor and some 700 million are hungry. Environmental changes are undermining hard-won development gains by causing economic costs and millions of premature deaths annually”.
At this point I deserted my chair and began walking around in my flat, looking at the edges of the windows, trying to find a spot where my thoughts or rather feelings could creep out. “Nothing new here,” I tried to convince myself. “It’s just another report.”
I tried telling myself that what I felt was mostly my own shattered mental state due corona. You become hypersensitive. It’s just another report. I continued reading:
“The well-being of today‘s youth and future generations depends on an urgent and clear break with current trends of environmental decline. The economic, financial and productive systems can and should be transformed to lead and power the shift to sustainability”.
I read that last the sentence out loud. The economic and financial… can and should… Hmm, can and should is not a ‘must’, or a ‘need’, or ‘have to’. Can and should is more like, well, you can, but you don’t have to. And you should, but you don’t have to.
Then the very first sentence caught my attention again, and I went into that mode where you sort of wonder what this report is really about.
“The current mode of development degrades the Earth’s finite capacity to sustain human well-being.”
Is this the UN way of saying that our current economic and financial mode of development sucks? That the model we have developed degrades our ability to sustain life on this planet?
We break, we repair
I then read the foreword of the Executive Director of UNEP, Inger Andersen, the author of the report. I needed to find some kind of light in all of this.
If I scroll back to her foreword, I told myself, then there will certainly be something about radical changes of economic and financial practices, you know, the real stuff that can motivate people to take action to have faith.
I was right. In the foreword, she writes: “The report outlines what the “repair” of our planet entails.”
Repair. It is a nice word. Dignity, positively loaded, breathes integrity. We break, we repair. The question is how.
However, one swallow does not make a summer. And just this morning I saw below clip with WHO’s Dr. Mike Ryan, speaking at an event a couple of days ago. I urge you to listen and share.
Bitcoin from an ESG perspective
Over the last couple of weeks, I have received several questions about Bitcoin. Is it sustainable? What is the climate impact of it?
Just recently, Tesla has invested hugely into Bitcoin. I believe this explains part of why there’s so much talk about it these days.
Allow me to be very clear: Cryptocurrencies and ESG principles are far from compatible. Any mainstream fund manager or pension fund seeking to place a portion of their portfolio in crypto will severely undermine their ESG credentials.
Why? As it has been well documented, the mining of bitcoin is extremely energy intensive and generates huge amounts of carbon emissions. University of Cambridge predict that bitcoin uses approximately 116 terawatt hours a year which is more than the Netherlands and just shy of Pakistan, a country with a population of 217 million.
Added to this, bitcoin mining generates as much carbon dioxide as New Zealand and uses as much electricity as Chile.
While many proponents argue the mining process is sometimes powered by renewables, this remains a small proportion with a heavy concentration of bitcoin mining taking place in China which is powered by burning coal.
Around 66% of all bitcoin “mining” is done in China.
To be more precise: Most of the mining happens in the Sichuan province. This is where the majority of Chinese “miners” are located, and in Sichuan, the majority of the electricity comes from the Three Gorges Dam. Which by all means looks like an environmental catastrophe.
Bitcoin is a dirty business
In other words: Bitcoin is a very dirty business. The health and environmental costs of cryptocurrency mining are substantial. Much larger than what most people realise.
The research does not suggest that cryptocurrency is “burning down the planet”, but the negative externalities identified in the research should be considered.
For example, the results illustrate a scenario where each 1 USD of cryptocurrency coin value created would be responsible for 0.66 USD in health and climate damages.
Crypto for social good
There is an another side of cryptocurrencies, and it needs to mentioned.
As a digital, peer-to-peer, decentralised, distributed ledger, blockchain has the potential to transform systems and enable solutions we never thought possible.
An OECD reports has estimated that 20-25% of funds are lost to corruption globally at the government level. Even when it’s unintentional, waste, inefficiency and misallocation of funds cost millions of dollars that could otherwise be used for good.
One advantage blockchain has is that it’s tamper-proof. Through a process known as “consensus”, each transaction is verified by multiple parties independently. Entries are immutable, meaning they can’t be modified, and can only be updated by adding an addendum.
With all entries publicly viewable, this offers unparalleled transparency into how donations are used. Not only does this build trust between an organisation and donors, but it helps mitigate the waste and fraud that has historically been a part of charitable giving. Alibaba, China’s e-commerce conglomerate, developed a blockchain-based donation system called Charities on the Chain. It records donations from Alibaba’s users and lets charities, auditors, donors, media and other parties track information on how donations are being used.
With traditional banking channels, sending money internationally can be a complex, multistep process. Transactions on blockchain result in a 40-80% reduction in transaction costs and take seconds to process instead of two to three days. Instant cross-border transactions allow charitable organisations to make an impact quickly instead of being held up by red tape.
You can read more about blockchains for social good here.
A tool to fight corruption?
In some ways, cryptocurrency has the potential to be more transparent than regular currency. The blockchain technology which is a feature of several cryptocurrencies, most notably Bitcoin, essentially acts as a digital ledger. It stores a permanent record within each Bitcoin of every transaction that coin has been used in, allowing a level of traceability that would be inconceivable with physical cash.
However, this transaction record doesn’t as yet store any information which would give away the identity of who’s spending or receiving the coins. The cryptocurrency industry is currently contemplating solutions which would enable the collection of personal information, but the patchy (sometimes non-existent) government oversight of cryptocurrencies gives them little incentive to cooperate.
Unless that changes, the usefulness of blockchain for tracking down criminal activity is limited. Read more.
So what are the links between bitcoin, the blockchain and corruption?
Bitcoin and digital currency transactions afford a greater level of anonymity than traditional transactions, with ownership recorded in the form of cryptographic keys rather than personally identifiable information.
Furthermore, there is no existence of a central monitoring body. As such, there is potential for Bitcoin to be misused in criminal activities such as money laundering, cybercrime and tax evasion.
Bitcoin has been identified as an enabler of money laundering for a number of reasons: Level of anonymity afforded, flexibility to disperse bitcoins across multiple accounts and transactions, making illicit activity hard to detect. Bitcoin transactions are almost instantaneous, making it difficult to identify and prevent illegal transactions. Read more.
More trouble in Africa
A couple of weeks ago, this newsletter was all about “ESG in Africa”. I received many positive, heartfelt reactions on that edition, and since I came across an interesting article from Brookings on Africa and food systems.
The global spread of COVID-19 and the rising number of confirmed cases in Africa have raised concerns about the weak healthcare systems in the region, while the lockdowns have caused economies to contract substantially.
Receiving less public attention, and yet also putting at risk lives and livelihoods, is the likelihood that COVID-19 and the associated economic challenges will spill into an African food crisis if the food system cannot cope.
Half of Africans already face food insecurity, of which 50 percent are severely food insecure, while the number of people who are hungry is likely to double. Double.
This leads to another issue that will have serious consequences for the many developing countries who serve as the coal, oil and gas factories of the developed countries: The global push to limit climate change is expected to cut demand for coal, oil and gas. And thus, the infrastructure built to extract these fossil fuels will soon become ‘stranded assets’.
ESG in Europe
In addition to Africa, I’ve also covered ESG in Asia and in Latin America in recent newsletters. But what about ESG in Europe?
In a report by asset manager Candriam, Switzerland is now top of the ESG league table. Number 2 is Sweden, while Denmark comes in third.
I will do an in-depth analysis on ESG in Europe in the weeks to come.
That’s all for now. Have a great week!
Kind regards, Sasja