Putting Cryptocurrency in Its Place: The Case for Why ESG Funds Should Exclude Cryptocurrency Investments

Abstract

Recent converging events have created a potential turning point as to both the future of ESG investing and the mitigation of harm from cryptocurrencies. Key investing demographics have shown an increasing interest in ESG investments. Legislators have demonstrated an interest in regulations for both cryptocurrencies and ESG funds, which has sparked a powerful lobbying effort from cryptocurrency advocates. States such as Florida, Louisiana, and West Virginia have divested from all ESG funds. Newly-elected legislators have vowed to investigate ESG funds, attacking them as “a cancer within the U.S. economy.” We are at a potential point of no return regarding environmental action, of which cryptocurrencies pose a great threat. Finally, the legitimacy of ESG investing criteria has been called into question by recent, seemingly inconsistent decisions such as excluding Tesla and allowing Exxon Mobile. Among this backdrop, this first-of-its-kind Article provides a much-needed assessment of the harms and benefits of cryptocurrencies. Societal harms include the environment; facilitation of illegal transactions; the diversion away from traditional stocks and bonds, which produce positive externalities; and the harm from providing an alternative to those who hold the U.S. dollar internationally. And properly understood, the alleged societal benefits of cryptocurrencies are highly exaggerated. These include protections from oppressive regimes, investment portfolio diversification, currency conversion fee avoidance, and ability to scale for consumer transactions. An honest weighing of these factors points conclusively to the harms far outweighing the benefits. Therefore, this Article concludes that ESG funds should exclude cryptocurrency-exposed companies. Inaction on this matter would be inconsistent with the stated goal of ESG investment funds. Fortunately, this standard would be relatively simple to implement, and relatively easy for businesses to comply with, therefore maximizing positive change. The novel framework provided in this Article is applicable to a broad range of applications regarding ESG determinations specifically and ethical considerations more broadly. Consequently, this Article will likely serve as a valuable catalyst for future scholarship into this and related areas.