Author Details

Harlan Tufford

Harlan Tufford

Vice President, MSCI Research

Nigel Fletcher

Nigel Fletcher

Vice President, MSCI ESG Research

Siyu Liu

Siyu Liu

Senior Associate, ESG Research

Aura Toader

Aura Toader

Associate, ESG Research

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Creeping Crypto: Cryptocurrency Risk and ESG

  • Institutional investors may be experiencing a “creeping” exposure to cryptocurrency, as new companies built around the asset class are added to indexes and older, established companies invest in cryptocurrency.
  • At least 52 public companies covered by MSCI ESG Research have exposure to cryptocurrencies including 26 constituents of the MSCI ACWI Index.
  • Many of the ESG risks associated with cryptocurrency will be relatively familiar, but others — such as the governance of cryptocurrencies themselves — are likely to be new for boards and investors alike.

Institutional investors may have more exposure to cryptocurrency risk than they realize. Twelve years since Bitcoin’s creation, cryptocurrencies today are a part of business for at least 52 companies covered by MSCI ESG Research, as of September 2021. These cryptocurrency-exposed companies include 26 constituents of the MSCI ACWI Index.

An illustrative sample of these companies is set out in the exhibit below:


Cryptocurrency-Exposed Companies



This interactive chart sets out an illustrative, non-exhaustive sample of 23 companies in our coverage with direct or indirect cryptocurrency exposure, including those with exploratory involvement in cryptocurrency. Position on the y-axis indicates the percentile rank of each company’s corporate governance score, assessed under the MSCI ESG Ratings methodology and relative to our global coverage, with higher numbers indicating a better score. Position on the x-axis indicates each company’s market capitalization, set out on a logarithmic scale. Color indicates each company’s Global Industry Classification Standard (GICS®) sector. GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence. Hover over or tap a circle to see more details about each company. Additional cryptocurrency-exposed companies are identifiable via our custom screening solutions. Data as of Sept. 29, 2021. Source: MSCI ESG Research LLC

While Bitcoin remains a focus for many of these companies, the number of coins has exploded in recent years. Coinbase — a cryptocurrency exchange, and one of the exposed companies identified in our coverage — tracks over 5,000 coins and facilitates trades in the largest coins by market capitalization. While most cryptocurrencies are speculative investments with little evident utility, some have seen limited success as genuine currencies, and many have posted eye-popping returns. This growth has contributed both to the rise of cryptocurrency-exposed companies and efforts by established companies to gain cryptocurrency exposure.


How ‘Creeping’ Cryptocurrency Exposure Works

This diagram illustrates how equity investors could passively and unintentionally gain cryptocurrency exposure. Source: MSCI ESG Research LLC

Equity investors — even those with significant reservations about the highly volatile asset class — may be faced with “creeping” cryptocurrency exposure. This can occur when newly listed cryptocurrency companies get added to the indexes that guide their investments, or when companies in which they are already invested, directly or through indexes, announce strategies that include Bitcoin or other cryptocurrencies.


The ESG Risks of Cryptocurrency

What are the key environmental, social and governance (ESG) risks associated with cryptocurrency exposure? What are some of the considerations for investors when assessing the ESG practices of cryptocurrency-exposed companies? We identified a number of potential risks, including:

  • Environmental: The key environmental risks from cryptocurrency exposure include greenhouse-gas emissions from energy usage and electronic waste (e-waste). Different coins have different environmental impacts, with Bitcoin (and other proof-of-work cryptocurrencies) showing evidence of higher impact. Identifying where mining occurs and what energy sources are used is key to assessing a coin’s emissions profile.
  • Social: The nature and scope of cryptocurrency’s social impact remain uncertain. Investor protection and education are important risks for companies that facilitate direct cryptocurrency investment. Transaction disputes may also pose a risk for companies that accept cryptocurrencies as payment.
  • Governance: Boards of cryptocurrency-exposed companies may need to adapt existing risk management policies and practices to the specific risks arising from cryptocurrencies. Many of these topics will be relatively familiar (for example, finance, cybersecurity and anti-money-laundering policies), but new and significant risks may arise from how the coins themselves are governed.


Understanding Cryptocurrency Governance

In particular, the governance of cryptocurrencies may present some new challenges for boards and investors alike. By design, most cryptocurrencies are decentralized; no single decision-making body oversees a cryptocurrency’s strategy and direction. The absence of a traditional governance structure does not, however, mean the absence of governance. Decentralized cryptocurrencies are supported and promoted by informal and dynamic communities of software developers, cryptocurrency miners and other actors. While the issues these actors deliberate are often technical, their decisions can culminate in significant changes to cryptocurrency economies.

At a minimum, investors may benefit from understanding how managers and directors of cryptocurrency-exposed companies are monitoring developments in these informal governance frameworks. For companies with more significant exposure, investor interests may be better served by being more actively involved. This could include engaging in activities such as:

  • Encouraging or funding the development of cryptocurrency protocols
  • Supporting decentralization within the cryptocurrency’s financial ecosystem
  • Engaging with other actors within the cryptocurrency’s governance framework

Regardless of whether a cryptocurrency-exposed company passively monitors or actively engages in the governance of cryptocurrencies, understanding how it approaches the intersection of its strategic plan and the long-term development of cryptocurrencies may help investors make more informed risk decisions.

The authors thank Yu Ishihara for his contributions to this post.


Further Reading

Our Only Cryptocurrency Episode (ESG now podcast)

Creeping Crypto: The ESG Risks of Cryptocurrency (available to ESG clients only)

Bitcoin: Good as Gold?

MSCI Perspectives Podcast: NFTs and Gamers and Bitcoin? Oh My!