ESG Rating of Polkadot: How sustainable is DOT?
Updated: Jul 27, 2022
For our ESG assessment of Polkadot, we took a deep dive into the world of parachains. Here's our analysis of the next-generation blockchain protocol in the environmental, social, and governance categories.
Polkadot is software that serves as the foundation for a global ecosystem consisting of various user-powered blockchains called parachains. As such, Polkadot competes with other technologies such as Chainlink (LINK) or Cosmos (ATOM), which pursue similar goals.
Fittingly, the Polkadot universe was founded by Ethereum co-founder Gavin Wood in 2017, some seven years after the first blockchain was created. In the world of cryptocurrencies, even this limited period of time is light years in terms of technological progress. And indeed; Polkadot is built on the next-generation nominated proof-of-stake (NPoS) model and thus on an entirely different algorithm.
We wanted to know if technological progress is also reflected in the ESG rating. Read on for our analysis of Polkadot in the environmental, social, and governance categories.
Overall, we source up to 110 data points per coin to feed our quantitative estimation models. We also apply qualitative expert judgment to ensure that soft factors such as visions, roadmaps, or conflicts of interest are taken into account and included in the rating.
Our rating system is relative, i.e. we evaluate the sustainability of each coin or token in direct comparison to its peers. In other words, we ask ourselves which cryptocurrency is more sustainable considering a similar market cap and transaction volume. This is to ensure that those with higher transaction volumes and associated higher CO2 emissions are not automatically penalized.
How environmentally friendly is Polkadot?
On its website, DOT positions itself as an environmentally friendly cryptocurrency, writing, "Polkadot has the smallest carbon footprint among proof-of-stake protocols." This was shown by comparing Total electricity consumption (kWh/year) between Polkadot, Cardano, Solana, Tezos, Avalanche, and Algorand .
In our analysis of DOT, we come to similar conclusions: With an average of 0.0001 terawatt hours (TWh) per year, the Polkadot network is characterized by small power consumption and definitely performs well from an ecological point of view. However, according to our calculation approach, some other blockchains such as Fantom cause slightly lower CO2 emissions, and Algorand has even already cracked net zero.
"Using the equivalent of ~6.6 US households worth of energy per year, Polkadot has one of the lowest carbon footprint among proof-of-stake protocols." Polkadot’s website
With e-waste of around 0.03 tons annually, DOT performs very well compared to other cryptocurrencies, especially proof-of-work protocols, which in particular are characterized by high hardware wear and tear. For example, Bitcoin mining generates about 6,000 tons of e-waste per year, Ethereum about 15,000 tons, and Litecoin about 800 tons. That said, DOT also compares favorably with similar PoS cryptocurrencies such as Algorand (approx. 2 tons), Avalanche (approx. 1 ton), or Tezos (approx. 0.4 tons).
In our relative ranking, Polkadot thus receives the best possible environmental score of A+.
How social is Polkadot?
Essentially, Polkadot has been created for internet users to regain control. The decentralized platform aims to empower innovators to build better, secure solutions to “free society from its reliance on a broken web where its large institutions can’t violate our trust”.
“We envision a Web where our identity and our data is our own - safely secured from any central authority.” Polkadot’s Mission Statement
Polkadot's social intention is thus closely tied to its ecosystem philosophy and the idea of becoming the "Internet of Blockchains," allowing people to use Parachains for their unique purposes.
While this may sound noble, Polkadot performs only averagely when we look at entry barriers and usage. In particular, this includes transaction fees of $0.5 over the last 12 months, which are subject to large fluctuations on occasion. In contrast, Solana (SOL), Avalanche (AVAX), NEAR Protocol (NEAR), or Stellar (XLM) perform much better in this area.
Polkadot also ranks in the middle of the spectrum when it comes to asset distribution compared to its peers. For example, the percentage of large holders owning more than one percent of the network is just over 30 percent. That said, there are no super large holders with stakes of more than 10 percent today.
The average asset distribution and the small but nevertheless existing entry hurdles lead to deductions of points, leaving Polkadot with a social score of B.
How well is Polkadot managed?
If we look for a best-in-class approach in the governance category, we will sooner or later end up with Polkadot. This is where the coin undoubtedly plays in the top ranks. One reason for this is that Polkadot uses the nominated proof-of-stake consensus algorithm where nominators back validators with their own stake as a show of faith in the good behavior of the validator. Also, Polkadot has a very good distribution of validators. Out of more than 1.000 validators, 297 are nominated to secure the network. This makes it virtually impossible to hijack the network. Other points worth mentioning that lead to a favorable governance rating include:
There have been no known security issues or notable network incidents since DOT launched in 2020.
As many as 1.500 developers working for the network ensure the continuous development and optimization of the ecosystem. 
The founders are transparently identified and participate in the management of the crypto. No potential conflicts of interest can be identified.
Thus, DOT receives the highest possible score of A+ in the Governance rating.
Polkadot is quite well documented. The overall data quality and availability are good compared to other analyzed native coins, but not excellent. This means that although we have to work with assumptions at various points, we can verify them reliably thanks to our own calculations.
Across all three ESG categories, Polkadot receives a B in the overall rating. The very good results in the environmental and governance categories show what is important to Polkadot: safety, resilience, and technological progress. Social values seem less relevant compared to other similar projects. It is therefore difficult to imagine that the rating will improve drastically in the foreseeable future.
 Energy Efficiency and Carbon Footprint of PoS Blockchain Protocols, Crypto Carbon Ratings Institute (CCRI), January 2022
 Choy, D. (2022) Project Strength: Which Blockchain Has The Highest Developer Count, And Why It Matters. ChainDebrief.