ESG Ratings Applied to Crypto
ESG Crypto Ratings
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We apply best practice principles of existing ESG Scoring frameworks such as Thomson Reuters, MSCI, Bloomberg, etc. to cryptocurrencies. Our objective is to drive sustainability adoption amongst investors and industry leaders in their decision-making when it comes to investing in or using blockchain technology. In our view, to achieve sustainability cryptocurrencies must be measured against four underlying structural criteria that can in turn be reconciled with traditional ESG frameworks.
- Environmentally Sustainable Operations and Consensus Models : Networks using Proof-of-Stake (POS) models, or similarly energy efficient consensus models. In cases of Proof-of-Work (POW) consensus, constituents will only be included on the basis of provably sustainable and low energy consumption relative to POS models.
- Scaling and Interoperability : Protocols implemented to improve the feature set of high-traffic Layer 1 networks, enabling fee reduction, energy cost/tax reduction, or higher throughput computing environments.
- Social Impact : Non-excludable, non-rivalrous utilities and services that provide a benefit to the public. Or constituents that demonstrate a disintermediation of centralized bodies, which drive current or potential positive effects for people and communities.
- Financial Inclusion : Constituents that expand the reach of modern capital markets through permission-less and decentralized delivery of financial goods and services.
Hence, to achieve an overall ESG Rating, we look individually at the three pillars of Environment, Social Impact and Governance.
- Pillars are broken down into 8 Key Issues related to cryptocurrencies.
Power Consumption Per Transaction
Community derived utility
Accessibility driven tokenomics
Distribution based Governance
- The 8 Key Issues are also individually scored based on a total of 32 input factors.
- We then apply the predetermined weight of individual Key Issues that determine their contribution to the rating of their corresponding Pillar based on best practice principle of ESG scoring (0 to 10).
- Next, we derive the Environmental, Social and Governance Pillars Scores from the weighted contribution of their underlying Key Issues, normalized relative to wider industrial benchmarks. For each Pillar we get a score 0 to 10.
- 9 to 10 converts to an A (Leader)
- 7 to 8.99 converts to a B (Aspirational)
- 5 to 6.99 converts to a C (Average)
- 3 to 4.99 converts to a D (Laggard)
- 0 to 2.99 converts to an E (Drag)
- Finally, to achieve a final ESG Crypto Rating Score, we compute a weighted average of individual Environmental, Social and Governance Pillar scores to obtain the overall score and convert it to a rating based on the same conversion table as above. After any committee-level expert overrides are factored in, each cryptocurrency’s Final Industry-Adjusted Score corresponds to a rating between best (A) and worst (E). These assessments are not absolute but intended to be interpreted relative to wider industry objectives and standards.
We thrive to update our standards to follow as closely as possible the ESG industry and regulatory landscape. For this we use the EU Taxonomy compass > Sectors > Information and communication > Data-driven solutions for GHG emissions reductions :
Contributing to climate mitigation : Development or use of ICT solutions that are aimed at collecting, transmitting, storing data and at its modelling and use where those activities are predominantly aimed at the provision of data and analytics enabling GHG emission reductions. Such ICT solutions may include, inter alia, the use of decentralized technologies (i.e. distributed ledger technologies), Internet of Things (IoT), 5G and Artificial Intelligence.
Substantial contribution criteria : First, the ICT solutions are predominantly used for the provision of data and analytics enabling GHG emission reductions. Second, where an alternative solution/technology is already available on the market, the ICT solution demonstrates substantial life-cycle GHG emission savings compared to the best performing alternative solution/technology.
Do no significant harm criteria : for Climate Adaptation and for the Circular Economy.
Can be held and traded without negative environmental or social impact and within a governed framework.
Low environmental and/or social impact with potential governance optimizations. Can be held and traded.
Negative environmental and/or social impact expected with potential governance issues. Trading and holding should be avoided.
Negative environmental and/or social impact with potential deficiencies in governance. Trading and holding are to be avoided.
Very negative environmental and/or social impact with potential deficiencies in governance. Trading and holding must be avoided.
Leading ESG adoption in the Crypto Industry
We believe that blockchain technology plays a crucial role in the journey towards a more sustainable future for our planet, societies, and economies. To that end we empower people to make sustainable crypto decision by applying ESG best practice to coins and tokens.
We heard people’s concerns about Bitcoin’s energy consumption and unsustainable electronic waste. We also believe that cryptocurrencies are a young asset class that will become sustainable on all three pillars of ESG through the adoption of ESG values. So, we set out to provide the necessary metrics and analysis required to drive adoption.
We Maintain ESG Ratings for You
We appreciate your trust greatly. Our clients choose us and our products because we offer qualitative ESG analysis on top of automated quantitative analysis.
With Responsible Decision-Making in Crypto
We empower private and institutional investors, asset managers, exchanges and blockchain industry players, as well as blockchain networks by assessing the social and environmental impacts of different coins and tokens.
We provide a tangible framework based on standard ESG best practices applied to cryptocurrencies for responsible decision-making, including sustainable investment decisions.