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Comparing the Carbon Footprint of Gold and Bitcoin

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The following content is sponsored by Prospector Portal.

Gold Bitcoin Carbon Footprint

The Carbon Footprint of Gold and Bitcoin

The year 2020 shook economies and financial markets around the world, creating uncertainty and volatility. This led investors to seek out alternative assets such as gold or bitcoin to weather the storm. Bitcoin stole the headlines from gold and attracted new investors in record numbers.

While this digital asset may exist in the electronic cloud, its increased adoption and energy use have significant environmental impacts. This infographic sponsored by Prospector Portal takes a look at the carbon footprint of bitcoin and gold.

Price Performance Increases Adoption

In early May, the value of the bitcoin market was $1.05 trillion, only 9% of the gold market’s $11.67 trillion value. Despite this, bitcoin performance is rising to challenge gold as an alternative asset in volatile markets.

In 2020, gold delivered a strong return with 25.12% over the year, and reached a historic high of $2,067 per ounce in August. However, the value of bitcoin rose 536.7% between May 2020 and May 2021, outperforming pretty much every asset possible over that timeframe.

According to Reuters, investors poured $5.6 billion into cryptocurrency funds and products in 2020, up more than 600% from 2019. This increased activity led to increased trading in the Bitcoin network, needing more energy.

Each $1 billion in inflows into Bitcoin uses the same amount of energy as 1.2 million cars”
– Bank of America

The Bitcoin network uses massive amounts of computational power to validate transactions as people trade bitcoin. For example, if you did some rough math, it would take 1,312 lightning strikes or you would have to drive 1,240,476 miles to produce the energy to mine one bitcoin. This amount of energy translates into serious emissions.

Comparing Carbon Footprints

Digital assets are deceiving in that they appear to generate out of thin air, but there is real power usage behind mining bitcoin. According to independent researchers Max Krause and Thabet Tolaymat, it takes 17 megajoules (MJ) of computer power to generate $1 of bitcoin and only 5MJ of energy to produce $1 of gold.

In fact, bitcoin mining is nearly 15X more carbon intensive than mining an equivalent amount of gold (in dollar terms). The carbon footprint of a single mined bitcoin (including fees) amounts to 191 tonnes of carbon dioxide while to mine the equivalent value in gold, it would only take 13 tonnes of carbon dioxide.

Hard Asset or Digital Drain?

The debate around the value and use of bitcoin and gold takes center stage while its environmental impacts lurk in the shadows. This is not unique to bitcoin, as obviously gold has its own footprint on the environment. That said, both of these assets are mined out of sight and out of mind for end consumers.

However, gold has always been gold, even before the advent of electrification. How much is a bitcoin worth when the lights go out?

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An Introduction to MSCI ESG Indexes

With an extensive suite of ESG indexes on offer, MSCI aims to support investors as they build a more personalized and resilient portfolio.

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An Introduction to MSCI ESG Indexes

There are various portfolio objectives within the realm of sustainable investing.

For example, some investors may want to build a portfolio that reflects their personal values. Others may see environmental, social, and governance (ESG) criteria as a tool for improving long-term returns, or as a way to create positive impact. A combination of all three of these motivations is also possible.

To support investors as they embark on their sustainable journey, our sponsor, MSCI, offers over 1,500 purpose-built ESG indexes. In this infographic, we’ll take a holistic view at what these indexes are designed to achieve.

An Extensive Suite of ESG & Climate Indexes

Below, we’ll summarize the four overarching objectives that MSCI’s ESG & climate indexes are designed to support.

Objective 1: Integrate a broad set of ESG issues

Investors with this objective believe that incorporating ESG criteria can improve their long-term risk-adjusted returns.

The MSCI ESG Leaders indexes are designed to support these investors by targeting companies that have the highest ESG-rated performance from each sector of the parent index.

For those who do not wish to deviate from the parent index, the MSCI ESG Universal indexes may be better suited. This family of indexes will adjust weights according to ESG performance to maintain the broadest possible universe.

Objective 2: Generate social or environmental benefits

A common challenge that impact investors face is measuring their non-financial results.

Consider an asset owner who wishes to support gender diversity through their portfolios. In order to gauge their success, they would need to regularly filter the entire investment universe for updates regarding corporate diversity and related initiatives.

In this scenario, linking their portfolios to an MSCI Women’s Leadership Index would negate much of this groundwork. Relative to a parent index, these indexes aim to include companies which lead their respective countries in terms of female representation.

Objective 3: Exclude controversial activities

Many institutional investors have mandates that require them to avoid certain sectors or industries. For example, approximately $14.6 trillion in institutional capital is in the process of divesting from fossil fuels.

To support these efforts, MSCI offers indexes that either:

  • Exclude individual sectors such as fossil fuels, tobacco, or weapons;
  • Exclude companies from a combination of these sectors; or
  • Exclude companies that are not compatible with certain religious values.

Objective 4: Identify climate risks and opportunities

Climate change poses a number of wide-reaching risks and opportunities for investors, making it difficult to tailor a portfolio accordingly.

With MSCI’s climate indexes, asset owners gain the tools they need to build a more resilient portfolio. The MSCI Climate Change indexes, for example, reduce exposure to stranded assets, increase exposure to solution providers, and target a minimum 30% reduction in emissions.

An Index for Every Objective

Regardless of your motivation for pursuing sustainable investment, the need for an appropriate benchmark is something that everyone shares.

With an extensive suite of ESG indexes designed specifically for sustainability and climate change, MSCI aims to support asset owners as they build a more unique and personalized portfolio.

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Tracked: The U.S. Utilities ESG Report Card

This graphic acts as an ESG report card that tracks the ESG metrics reported by different utilities in the U.S.—what gets left out?

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NPUC Utilities ESG Report Card Share

Tracked: The U.S. Utilities ESG Report Card

As emissions reductions and sustainable practices become more important for electrical utilities, environmental, social, and governance (ESG) reporting is coming under increased scrutiny.

Once seen as optional by most companies, ESG reports and sustainability plans have become commonplace in the power industry. In addition to reporting what’s needed by regulatory state laws, many utilities utilize reporting frameworks like the Edison Electric Institute’s (EEI) ESG Initiative or the Global Reporting Initiative (GRI) Standards.

But inconsistent regulations, mixed definitions, and perceived importance levels have led some utilities to report significantly more environmental metrics than others.

How do U.S. utilities’ ESG reports stack up? This infographic from the National Public Utilities Council tracks the ESG metrics reported by 50 different U.S. based investor-owned utilities (IOUs).

What’s Consistent Across ESG Reports

To complete the assessment of U.S. utilities, ESG reports, sustainability plans, and company websites were examined. A metric was considered tracked if it had concrete numbers provided, so vague wording or non-detailed projections weren’t included.

Of the 50 IOU parent companies analyzed, 46 have headquarters in the U.S. while four are foreign-owned, but all are regulated by the states in which they operate.

For a few of the most agreed-upon and regulated measures, U.S. utilities tracked them almost across the board. These included direct scope 1 emissions from generated electricity, the utility’s current fuel mix, and water and waste treatment.

Another commonly reported metric was scope 2 emissions, which include electricity emissions purchased by the utility companies for company consumption. However, a majority of the reporting utilities labeled all purchased electricity emissions as scope 2, even though purchased electricity for downstream consumers are traditionally considered scope 3 or value-chain emissions:

  • Scope 1: Direct (owned) emissions.
  • Scope 2: Indirect electricity emissions from internal electricity consumption. Includes purchased power for internal company usage (heat, electrical).
  • Scope 3: Indirect value-chain emissions, including purchased goods/services (including electricity for non-internal use), business travel, and waste.

ESG Inconsistencies, Confusion, and Unimportance

Even putting aside mixed definitions and labeling, there were many inconsistencies and question marks arising from utility ESG reports.

For example, some utilities reported scope 3 emissions as business travel only, without including other value chain emissions. Others included future energy mixes that weren’t separated by fuel and instead grouped into “renewable” and “non-renewable.”

The biggest discrepancies, however, were between what each utility is required to report, as well as what they choose to. That means that metrics like internal energy consumption didn’t need to be reported by the vast majority.

Likewise, some companies didn’t need to report waste generation or emissions because of “minimal hazardous waste generation” that fell under a certain threshold. Other metrics like internal vehicle electrification were only checked if the company decided to make a detailed commitment and unveil its plans.

As pressure for the electricity sector to decarbonize continues to increase at the federal level, however, many of these inconsistencies are roadblocks to clear and direct measurements and reduction strategies.

National Public Utilities Council is the go-to resource for all things decarbonization in the utilities industry. Learn more.

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