Bitcoin application shreds BlackRock’s ESG credibility

In October, a United Nations University report estimated if bitcoin were a country it would rank as the 27th most energy intensive in the world by consuming 173.4 terawatt hours of electricity annually during 2020 and 2021. This means the bitcoin network consumes more power annually than a country like Pakistan, which has 231 million people.

Bitcoin has little utility, other than as a store of value, or synthetic asset price bubble where early adopters sell to later adopters at a profit. Ironically, it was invented in 2009 as a permissionless network to transfer money free from interference from the likes of establishment giants such as BlackRock.

It cannot work as money in practice because it is too volatile, with owners reluctant to spend it if they anticipate its price will rise.

Carbon footprint

Still, to be fair to BlackRock, the size of bitcoin’s carbon footprint remains contentious.

Academic studies have reached varied conclusions, and they tend to align with whatever motivates or incentivises their authors.

The decentralised and anonymised nature of bitcoin mining means it’s impossible to know what percentage of miners are drawing on renewable energy sources versus those drawing electricity from coal-powered sources, for example.

The UN report estimated bitcoin’s energy consumption to be equivalent to burning 84 billion pounds of coal annually, which would require the planting of 3.9 billion trees to offset.

Self-styled climate saviour Fink won’t like research that points to bitcoin as closer to digital coal than digital gold.

The cryptocurrency’s supporters claim it is increasingly mined from renewable power. This trend may be correct, but it’s still hard to justify allocating renewable power to bitcoin mining ahead of industries that deliver industrial value or improved living standards.

For example, in 2022 multiple Canadian provinces banned bitcoin miners from building new renewable power operations on the basis they diverted time, energy and capital resources away from projects that serve a greater utility to society.

Asked about the work BlackRock has undertaken on bitcoin’s ESG credentials, a spokeswoman said the company could not comment on issues related to the token or regulatory filing.

She pointed to a 2023 KPMG report titled Bitcoin’s Role in the ESG Imperative and other literature linked to BlackRock’s commitment to sustainable investing. In addition, she said, BlackRock had praised a business called Energy Web, which lessens bitcoin’s environmental damage.

The KPMG report says bitcoin uses around 110 terawatt hours of electricity a year, equal to 0.55 per cent of total global electricity consumption. It also argues bitcoin incentivises the increased integration of renewable energy into power grids as it attracts capital, with a conclusion that bitcoin can provide other benefits across an ESG framework.

Still, others like Tesla abandoned their promotion of bitcoin in 2021 as it is too environmentally destructive for a company genuinely committed to climate protection.

So, even if we accept that some of bitcoin’s required power is now sourced from renewable sources, its net contribution to society remains debatable.

Fink told CNBC in 2017 that bitcoin was an “index of money laundering”, with the currency’s reputation as a preferred choice for online hackers and terrorist financiers still sound.

But perhaps the Damascene conversion is explainable by arguments that bitcoin is no more amenable to money laundering than ordinary fiat money. This is also what KPMG finds.

Whatever Fink’s thinking, bitcoin looks a dubious bet for an executive who has positioned the world’s largest asset management group as an arbiter of other corporations’ commitments to fighting climate change.