We define sustainability as the interplay between the environment, society and governance. Our ESG rating is therefore made up of three scores, the lowest of which determines the overall rating of the crypto asset.
This is based on the idea that sustainability is a holistic concept in which every dimension counts in full. The weakest link in the chain thus determines the overall rating of how sustainable the cryptocurrency or blockchain is. Otherwise, it would be possible, for example, to compensate for a negative environmental impact through good corporate governance and thus significantly improve the ESG rating.
The environmental impact of cryptocurrencies is a critical aspect on our path to a carbon-neutral economy. Our research shows that the differences between assets are often significant. For our assessments, we analyze various quantitative and qualitative data points in the areas of power consumption per transaction, electronic waste, as well as carbon footprint and reduction measures.
The social aspects of crypto-assets are particularly complex to assess. They are often neglected in media coverage but are important for a balanced view of sustainability. We examine data on the social impact of blockchains and tokens, the distribution of assets and on barriers to access and use, which can often be high, especially for socio-economically disadvantaged people.
In the past, various scandals in the crypto industry have demonstrated the relevance of the governance dimension. For our reating, we evaluate the technology, not the company behind it. We look at network diversification, security, and incidents, as well as general governance issues such as potential conflicts of interest between the controlling entity and the community or the impact of negative headlines.
Our ESG rating represents a relative evaluation system in which the points per blockchain or token are compared with those of competitors. We focus on the 100 largest crypto assets by market capitalization.
For each assessment, we evaluate between 90 and 110 data points to feed our quantitative calculation models. We also apply qualitative expert judgment to ensure that soft factors such as vision, roadmaps or conflicts of interest are considered and included in the assessment.
Our ratings are reviewed every three months and all data sources are fully reviewed every six months.
We believe that the sustainability of any cryptocurrency needs to be assessed holistically – similar to industry standards for stocks, real estate, or bonds.
We assess the compliance of crypto assets with ESG standards and provide an estimation of the identified ESG risk. Blockchains are rated based on their capability as a digital infrastructure with respect to ESG standards, while tokens are rated as projects built on top of one or multiple blockchains.
To develop these frameworks, GCR derived its rating criteria from existing ESG frameworks that assess stocks, such as MSCI, Sustainalytics, and Bloomberg, among others. This resulted in a set of criteria consisting of both qualitative and quantitative variables. In total, both frameworks consist of more than 90 variables, ensuring that a comprehensive evaluation is conducted for each blockchain and token.
Best in Class
Low ESG risks identified, making these assets the most sustainable options
A+ | A-
Moderate ESG risks identified, making these assets rather sustainable options
B+ | B | B-
Identified a number of ESG risks, making these assets rather unsustainable options
C+ | C | C-
Significant ESG risks identified, making these assets unsustainable options