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With regulation ramping up for providers around the world, the crypto sector will need to keep a very close eye on sustainability as it continues its impressive growth trajectory.

The global cryptocurrency market cap now exceeds $2.3 trillion and as the industry realises new use cases and matures, there are new issues to consider. This includes the environmental impact of digital asset activities.

As crypto-asset service providers’ (CASPs) hold on crypto activity increases, so too must their responsibility when it comes to ESG considerations. The direction of travel is clear and the regulatory lens is widening. The European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD), for example, has been heralded as a pivotal development for all listed companies on the EU regulated market, including financial market participants. With more than 1,100 indicators to report on, the organisations covered by it are facing heightened complexity and data requirements, which include the need for many providers to now report their Scope 3 emissions. 

It’s hoped these new rules will ensure investors and other stakeholders have easier access to the information they will need to assess the impact of companies on people and the environment, and for investors to more easily assess financial risks and opportunities arising from climate change and other sustainability issues.

The latest requirements are flying under the radar

While the CSRD is fairly well known and understood, this isn’t the case for all new sustainability reporting requirements, such as those linked to the Markets in Crypto-Assets (MiCA) regulation. 

MiCA was introduced to implement uniform EU market rules for crypto-assets. Amongst the numerous requirements is one that has seemingly been missed by many CASPs: the new sustainability requirements, drafted by the European Securities and Markets Authority (ESMA) and covering the environmental impact of the wide range of crypto-assets that providers are now offering. 

Industry research recently highlighted the fact that as many as four in five CASPs – including exchanges, brokerages, custodians and trading firms – are blissfully unaware of the need to report sustainability data from MiCA’s fast-approaching deadline.  

As mandated in MiCA Article 66, CASPs that are currently active in the EU, or who wish to provide their services into the EU, will need to have a compliant website disclosure covering the environmental impact of offered crypto-assets in place from 30 December 2024. 

And it’s important that they take notice of this deadline. Ultimately, failure to comply runs the risk of a potential fine of at least five million euros or 5% of a provider’s total annual turnover. Ignoring the new requirements would therefore be a rather costly mistake. 

Greater collaboration will unlock new solutions

At Zumo, we’re passionate about helping to drive a more sustainable, compliant future for the sector – and this can only be delivered via close collaboration between the various stakeholders.

We were proud to be a member of the World Economic Forum’s Crypto Sustainability Coalition, which explored how blockchain tools can be leveraged to contribute to meaningful progress towards climate action, and we recently signed the Abu Dhabi Sustainable Finance Declaration as we grow our business in the region. 

Members of our team also co-founded the Emerging Technologies Sustainability Taskforce (ETST), created to ensure the specific characteristics of emerging technologies, such as blockchain, are encapsulated so the standards used for sustainability across the global digital assets sector are fit for purpose.

Our view is that MiCA, and other sustainability-related regulatory requirements likely to follow, represent a real opportunity for CASPs to future-proof their business models and provide a pioneering sector-based example of what a sustainable financial future looks like. 

As a first step in that journey, we have recently launched our Oxygen MiCA compliance module, which is helping CASPs to more easily access MiCA-compliant sustainability metrics for their listed crypto-assets. 

The solution draws on best-in-class sustainability data and further builds on our Oxygen proposition, first introduced to help CASPs better align their digital asset activities with net zero principles when it was still a voluntary action. Now that it is increasingly mandated, our new feature will help CASPs across the EU to streamline and simplify their sustainability compliance through auto-generated disclosure reports. 

MiCA’s sustainability requirements are going live, and they are going live to a very tight deadline. They can’t be avoided, and they will bring with them complex data questions – as well as potentially hefty fines for those who don’t comply. By working together as an industry, we can all breathe a little easier as the deadline approaches.