Crypto’s had quite a May so far, but regardless of whether the market’s up, down or sideways, one of the most interesting dynamics to observe over the last few months has been the growing friction between some of crypto’s most vocal proponents and those considered to be at the helm of environmental, social and governance (ESG) investment. The launch of Strive Asset Management earlier this month with added fanfare from crypto fanatic Peter Thiel perfectly encapsulates this dynamic.
Strive Asset Management has been launched as a response to what its founder describes as the rise of “woke” ESG investment strategies that have become popular across the globe. The asset manager outfit isn’t the first explicit anti-ESG investment offering, but it is one of the most high-profile of late.
In December last year the BAD ETF was launched to offer exposure to what it calls “sin stocks” such as those from the gambling, alcohol and pharmaceutical industries, which are often excluded from ESG investment offerings. These anti-ESG offerings are increasing in the US market in particular as criticism of the investment strategy gains momentum within a certain demographic.
For his part, Thiel has provided backing for Strive (alongside Pershing Square Capital founder Bill Ackman) and is an extremely vocal critic of ESG investment. At the bitcoin conference in Miami in April, Thiel took to the stage to criticise ESG proponents including BlackRock CEO Larry Fink for their anti-crypto stance. In what could be best described as a rant, Thiel described Fink as part of a “finance gerontocracy” that is stood in opposition to the “revolutionary youth movement” behind crypto and described ESG as a “hate factory” and the enemy of crypto. I use direct quotations here because you really have to listen to the speech to believe it.
My personal views on whether Thiel is best placed to comment on ‘the youth’ aside, his dislike of ESG is tied to his perspective that it is controlled by the government. In fact, he compared it to the Chinese Communist Party in his conference keynote. He and fellow ESG sceptic Ackman believe that ESG is being led by a political agenda rather than a financial one. They aren’t alone in their criticism of ESG and the financial performance of many ESG offerings during 2021 has been used as proof of this dynamic by its detractors.
However, the particular anti-crypto aspect of ESG is tied to the energy usage required for the mining of most cryptocurrencies that excludes these “assets” from being considered green.
No wonder the crypto community is conflicting with ESG, you might say, but there are efforts on both sides to bring these communities into closer alignment. Specific initiatives have been launched to create crypto assets that are much greener than bitcoin, for example, by focusing on improving energy efficiency and lowering their carbon footprint. This, of course, doesn’t address the ‘government control’ aspect of ESG from the crypto side of the fence.
As with anything relatively new in the investment space, it is quite easy to criticise both ESG and crypto. One could argue that the E, S and G of ESG don’t necessarily sit easily together as a comprehensive investment strategy, for example. Or that crypto is the investment equivalent of the emperor’s new clothes. But whatever argument is used, the most vocal proponents behind them for now seem diametrically opposed.
Greenwashing and crypto fraud will also continue to proliferate until we get a bit more regulatory clarity on standards and frameworks to which firms must adhere in major jurisdictions across the globe. Regulation, however, isn’t going to solve this culture clash—in fact, it’s likely to make it much worse.
Longer term, time will tell which side ultimately wins the argument (if anyone does). In the red corner, we have the primarily Bahamas-domiciled crypto platform providers and vocal ‘anti-woke’ investment proponents. In the green corner, we have the institutional ESG crowd and the regulatory community currently busily building the foundations of a green taxonomy. In the middle, we have the investors themselves.
The only possible way we could possibly call a winner is by examining the next generation’s investment appetite for crypto and ESG. Will the recent dispiriting financial performance of both have a long term impact? Let’s see, shall we?