Investors focused on environmental, social and governance matters are increasingly subject to “creeping” exposure to cryptocurrencies, according to MSCI.
The index provider said at least 52 public companies covered by MSCI ESG Research have exposure to cryptocurrencies, representing about $7.1 trillion in market capitalization, or around 6.6% of the market cap covered by the unit, according to the ESG team’s podcast.
“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,” said MSCI ESG Research. “This growth has contributed both to the rise of cryptocurrency-exposed companies and efforts by established companies to gain cryptocurrency exposure.”
Exposure comes from a range of companies such as pure-play crypto firm Coinbase, the exchange operator that went public in April. Other names include Facebook, which logs no revenue from digital coins but is exploring ways to monetize the system, and Nvidia, the chipmaker with a dedicated graphics-processing unit for professional cryptocurrency miners.
Crypto exposure creeps in when newly listed cryptocurrency companies are added to indexes, or when companies that investors already own – directly or through indexes – venture into activities involving bitcoin or other cryptocurrencies, said MSCI.
Crypto-exposed companies include 26 constituents of the MSCI ACWI Index, the company’s flagship global equity index that gauges the performance some large- and mid-cap stocks in 23 developed and 27 emerging markets. The index includes more than 2,900 constituents across 11 sectors.
Meanwhile, investors with crypto exposure may also be running counter to their ESG goals.
Environmental risks from cryptocurrencies include greenhouse-gas emissions from energy usage and electronic waste. Governance risks include boards of cryptocurrency-exposed companies needing to adapt risk-management policies to issues such as cybersecurity and anti-money laundering practices.