Indian Macroeconomic Commentary 7

An exciting debate in the world of finance today brings together two themes that are high on the minds of all investors. The first theme is that of sustainable investing, and the second one involves crypto currencies. Sustainable investing that seeks to integrate environmental, social, and governance (ESG) concerns into investment decisions has been receiving much attention in light of the recent events highlighting the disturbances caused by extensive exploitation of nature and the resulting climate change. Investors have a role to play in demanding from businesses affirmative actions for positive social impact and environmental protection. Efforts for building a resilient and sustainable future must go alongside the pursuit of competitive financial returns. While sustainable investing strategies have been around for a few decades now, relatively newer entrants to the world of finance are crypto currencies, which till recently have been considered a domain reserved for the nerds and the techies. However, since its introduction in 2008, the crypto market has witnessed a remarkable increase in investors and has gained acceptance in many organizations as an alternate mode for payment, with several companies accepting payments for their products in crypto currencies. The overall market capitalization of crypto currencies crossed US$ 3 trillion for the first time ever in November 2021.

Are crypto currencies an antithesis for sustainable investing, or can they find a place in the ESG portfolio of investors? This is where the debate centers. One set of investors argue that the environmental costs of mining crypto currencies and their potential for use in illicit transactions rules them out from the portfolios of sustainability focused investors. The other set believe that crypto currencies can give the world a sustainable alternative to fiat currencies. As more crypto currencies declare their block chains as carbon-neutral and foster relationships with businesses to help improve their sustainability profiles, the role of crypto currencies in ESG portfolios needs to be discussed anew. The goal is to weave ESG concerns into purely financial considerations, to ensure that capital flows to businesses that also contribute to positive change.

Dr. Niti Nandini Chatnani

Professor (Finance) IIFT, New Delhi