Crypto ETF drags ESG into wildly volatile world of Bitcoin
A LONDON-based money manager has just attached an “ESG” label to a Bitcoin exchange-traded fund (ETF), in a move that has made environmental experts do a double take.
Jacobi Asset Management says its Jacobi FT Wilshire Bitcoin ETF is an Article 8 fund, which, under European Union (EU) regulations, means it has to “promote” ESG, the acronym for “environmental, social and governance”. It’s the latest addition to the Article 8 fund category, which Bloomberg Intelligence estimates now covers about US$6 trillion in assets across an ever-wider array of financial products.
Never before has the EU’s ESG investing rules been applied to an ETF, the primary goal of which is to let investors speculate on the value of Bitcoin, going by data tracked by Bloomberg. Martin Bednall, a former BlackRock executive who became chief executive of Jacobi last year, is telling investors that the ETF will be “fully decarbonised”.
The ETF is domiciled in Guernsey (the largest island in the English Channel) and listed in Amsterdam, after other jurisdictions posed too many regulatory hurdles, said Bednall. The London Stock Exchange has been off-limits, due to restrictions imposed by the Financial Conduct Authority, he added.
In the meantime, Jacobi is looking at other markets in Europe to cross-list the ETF, and is also “having conversations in Asia, Africa and the Middle East”, Bednall said.
The Jacobi ETF counts as an ESG product because of investments in renewable-energy certificates (RECs), he noted. The idea is that by purchasing the RECs, Jacobi will be supporting enough renewable-energy projects to make up for the greenhouse-gas emissions of the energy used to mine the Bitcoin tracked by the ETF.
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There are few undertakings that are as energy-intensive as mining for Bitcoin. The computing power needed to extract units of the cryptocurrency is estimated to use up about 140 terawatt-hours (TWh) a year, which is roughly what the nation of Norway generated in 2022.
The Cambridge Centre for Alternative Finance estimates that only 38 per cent of Bitcoin mining is done using sustainable energy, including renewables and nuclear power, compared with an industry estimate of about 60 per cent.
Matthew Brander, a senior lecturer in carbon accounting at the University of Edinburgh Business School, said that using RECs to fulfill a decarbonisation strategy “isn’t credible”.
“Buying a REC doesn’t represent any real-world relationship between digital assets and renewable power,” he added in an e-mailed reply to questions.
That’s particularly true when the RECs are unbundled, as is the case with the Jacobi certificates, according to Anders Bjørn, lead author of a June 2022 article on RECs published in Nature Climate Change, a peer-reviewed science journal.
The decarbonisation claim “is only credible if Jacobi Asset Management can show that its purchasing of RECs causes an equivalent amount of renewable energy to be generated”, Bjørn wrote in an e-mail. “That seems highly unlikely, as the company purchases unbundled RECs to match the electricity consumption from Bitcoin mining.”
Bednall said that he’s aware of criticisms of market instruments used to mitigate carbon emissions, and that Jacobi opted for RECs after looking into the available options.
“RECs were preferred over offsets, as the most material part of our carbon footprint is in relation to the electricity consumption of the Bitcoin network,” he explained.
Since listing in mid-August, the ESG Bitcoin ETF has attracted just over US$1 million in investments. BLOOMBERG
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