Bitcoin Provides ‘A Number of Benefits Across An ESG Framework’ Says Big Four Accounting Firm KPMG

In its recent report titled ‘Bitcoin's role in the ESG imperative‘, Big Four accounting firm KPMG has shared what appears to be a glowing review of the asset and the role it plays in Environmental, Social, and Governance (ESG) initiatives.

“Bitcoin appears to provide a number of benefits across an ESG framework.  Throughout its short history, new and innovative ways of leveraging the network and its native asset continue to emerge, such as helping to stabilize energy grids, reduce greenhouse gas emissions, and even assist with providing sustainable heat to commercial and residential properties.”

This conclusion is particularly notable, as Bitcoin's alleged environmental impact and lack of social value are often the first points of contention with the asset when speaking to detractors of the world's largest digital asset.  So why did KPMG come to a different conclusion?

What is ESG?

Before diving further into Bitcoin itself, it is important to understand what ESG actually is.  As stated, ESG stands for Environmental, Social, and Governance. An ESG framework is a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Here's a breakdown of each of the three factors:

1. Environmental: This factor examines how a company is interacting with the environment. It includes issues like waste management, energy use, water conservation, pollution reduction, and the company's impact on climate change. Companies that are considered environmentally responsible might invest in renewable energy, reduce their carbon footprint, and practice sustainable supply chain management.
2. Social: This aspect of ESG relates to how companies manage relationships with employees, suppliers, customers, and the communities where they operate. Key issues can include labor practices, diversity and inclusion, human rights, consumer protection, and animal welfare.
3. Governance: This involves the leadership structure of a company, executive pay, audits and internal controls, and shareholder rights. This can also include issues like corruption, political lobbying, and tax strategy.

ESG framework has gained importance in recent years, as many investors and stakeholders are increasingly interested in understanding a company's impact on the world beyond simply their financial performance. ESG performance can have real financial impacts as well. For instance, companies with poor ESG records may face regulatory fines or reputational damage, while those with strong ESG performance may find it easier to attract investment and high-quality staff.

It's also important to note that different companies, industries, and countries may face different ESG risks and opportunities. Therefore, it's often necessary to consider the context when assessing a company's ESG performance.

Bitcoin's Role in ESG

In its report, KPMG does well to address the impact of Bitcoin from each an Environmental, Social, and Governance perspective.  Here is a brief look at the report's findings.

Environmental

Right off the bat, KPMG is quick to note that typical Bitcoin mining processes do not emit ‘scope 1' emissions.  This means that the only emissions associated with mining Bitcoin come from the energy providers themselves.  While this may be the case, Bitcoin is not yet ‘net-zero' with its associated carbon emissions.  To that end, KPMG has noted 4 four ways in which it believes this footprint could be shrunk even further.

Use of Renewable Energy to Lower Cost and Incentivize Further Production

As Bitcoin does not rely on geography, mining operations can easily be set up to harness clean, renewable energy in areas not connected to power grids.  This ability to harness stranded energy can fuel a continued push toward developing sustainable practices.

Demand Response

Bitcoin mining works seamlessly with demand response practices, due to its ability to shut down at a moments notice when grid infrastructure experiencing spikes in consumption.

Recycled Heat

Rather than waste the heat generated from the ASIC devices used to mine Bitcoin, it is now being harnessed to heat residential and commercial properties – and as there are no scope 1 emissions involved, the practice reduces greenhouse gases associated with burning natural gas or furnace oil.

Methane Reduction

Although Carbon Dioxide (CO₂) may get the bulk of the attention among harmful greenhouse gases, Methane (CH₄) is 80 times worse.  Due to its impact on the environment, Methane is typically burned or ‘flared', rather than being released into the atmosphere.  This is nothing but wasted energy.  Due to the ability for Bitcoin mines to be set up nearly anywhere, many are now harnessing this Methane that would normally be burned as a source of fuel.  This means that greenhouse gases are still prevented from being released, but companies responsible for the practice can now monetize what would normally be wasted energy.

Social

From a social impact standpoint, Bitcoin also shines.  This is unsurprising, as it was originally designed primarily with its social impact in mind, striving to not only bank the unbanked but facilitate financial self-reliance.  KPMG provides the following examples of what Bitcoin has to offer with regard to social impact.

Payments

Bitcoin is not controlled by any one entity.  It is a global currency that does not recognize borders, and is accessible to anyone, at any time.  What this means is that value can be transferred anywhere within the world, as easily as it is to your neighbor.  This ability has the potential to upend the remittance industry, and as scaling solutions like the Lightning Network are developed, everyday transactions as well.

Fundraising

Using Ukraine as an example, KPMG notes that Bitcoin played a large role in facilitating timely donations when the nation was first faced with the prospect of war.  The ability to transact value in such a timely manner, without the drain of intermediaries, means that an asset like Bitcoin can be instrumental in distributing financial aid in the wake of natural disasters, conservational efforts, and more.

Monetization of Excess Power

Much like Methane has traditionally been wasted during flaring, there are scores of rural areas around the world that have access to excess electricity derived from solar installations, hydroelectric dams, etc.  Unfortunately for many, these energy sources are geographically isolated, and not connected to any power grids – meaning the power cannot be easily monetized.  KPMG notes that this is particularly relevant to rural Africa, where Bitcoin mining operations are providing such villages with a financial return not previously possible.

Financial Inclusion

In North America, many take simple things like online banking for granted.  However, the reality is that there are in excess of 1.4 billion humans that do not have access to such services.  While the reasons for this are varied, the fact remains that a global currency is needed more than ever.  KPMG notes that Bitcoin is particularly well suited to fill this need, as it allows for many to ‘escape authoritative and corrupt government regimes‘ that are working to prop up failed FIAT (ie. North Korea, Venezuela)

Governance

Finally, when addressing governance, KPMG highlights the decentralization of Bitcoin.  By forgoing the typical centralization associated with financial systems, Bitcoin is not subject to the whims of any one entity.  This is made possible by eliminating the need for counterparty risk through required intermediaries.

By functioning in such a manner, the asset cannot be weaponized through financial sanctions, or be manipulated due to political leanings.  It is also extraordinarily resilient due to its baked-in redundancies.

All in all, the expanse of its decentralized network, which leveraged a Proof-of-Work (PoW) consensus mechanism, makes Bitcoin one of the most reliable means of transaction value in the world.

Final Word

Overall, this report by KPMG does well to highlight the myriad of ways that Bitcoin can help the world from an ESG standpoint.  However, despite its promise, even KPMG notes that,

“Time will tell what Bitcoin's role may look like in the transition to renewable energy and how it may serve as a financial tool to those in authoritative regimes or those experiencing significant inflation.”