Environmental, social, governance (ESG) is the focal point of all regulatory and policymaking agendas across the world. The financial service sector is no recluse, and there are pivots for changing this landscape for the better too. Environmental criteria refers to the energy consumption of the company, the resources it consumes, the waste it discharges and the impact it has on the lives of living beings. The social criteria addresses the relationships that the company has (builds and aims to build) with the communities where it does business in; labor relations, social diversity and inclusion, all form part of this. Governance as a criterion focuses on the internal systems, practices, processes, and compliance with the law1.

In this article, we will discuss the prominent sectors and regulators who have considerable inputs with respect to ESG in the finance ecosystem. As a matter of fact, the cryptocurrency industry which is infamous for its opacity and lack of acceptance, is also fraught with ESG concerns, which we will explore right off the bat.

Blockchain, Cryptocurrencies and more than Crypto

There are apparent challenges in the form of sustainability of cryptocurrencies, for there is a phenomenal rise in demand for energy. Unilateral rhetoric of crypto-mining leading to undoing of all environment sustainability efforts, or that of it being the sustainable and green-er industry, has led to vested interests coming to the fore. Depending on the message the regulator wants to send out, we have seen governments swaying from being passive about it, to either banning it, or regularizing it.

An industry which is not averse to creating shockwaves, across the business world, ESG concerns, and sustainability have been on the forefront of many discussions. The differing opinions in this domain come from proof of work (PoW) and proof of stake (PoS) mechanisms, with PoW being treated as the sub-par technology with higher energy consumption. To the dismay of most, as per the Bitcoin Mining Network Report published by CoinShares in 2019, almost 73% of the energy utilized towards mining activities stem from renewable energy sources1. Without disregard to any mechanism of cryptocurrency, the ecosystem will examine the better efficient assets, which would suit for large-scale adoption.

In fact, there have been studies across cases and geographies, of strengthened ESG helping reduce companies' risk of any adverse government actions. One might even go on to say that it engenders government support2. This could be one of the key areas of focus for the cryptocurrency segment, which yearns for legitimacy and faster adoption. Goes without saying that for countries to meet their SDGs3, regulatory actions may impose higher costs for carbon-intense industries; this might be an opportune moment for this sector to revamp their operations and embrace energy-efficient operations.

It is important for us to consider that ESG is beyond just "E", and this is where this sector has felt the most criticism; there is very little impetus put on the social inclusion and digital aspects of this industry. However, with digital transformation, decentralized finance, individuals now have easier access to financing, almost no banking fees, better rates on savings, and financial inclusion is being better afforded in this manner. Distributed ledger technology, including blockchain, has the potential and has been utilized to deliver, realize SDGs, on an unparalleled scale. Governance will continue to be adaptive with more awareness, better representation, and willingness to assume risks and strategies for ESG. Fortunately, for this nascent industry, which has so many use cases, the teams which are at the forefront, all appear to be skilled strategy makers, and are highly adaptive with respect to the requirements that may be sought at a regulatory level, social level or at the level of consumer awareness.

Asset and Fund Managers

Moving away from the much recent world of cryptocurrencies, the sturdy and conventional set-up of asset and fund managers, and asset owners are also being required by regulators and investors, alike, to embed sustainable investment4 across their business activities and to adapt to all facets of ESG.

European Union

One of the interesting approaches undertaken was by the European Union. The focus is four-pronged: (1) Taxonomy – focusing on a unified classification on what can be considered environmentally sustainable economic activities; (2) Disclosure – focusing on obligations on the institutional investors and asset managers to disclose how they integrate ESG factors in their risk processes; (3) Benchmarks – creation of categories of benchmarks, comprising low-carbon and positive carbon impact benchmarks; and, (4) Sustainability Preferences – requirement to include ESG considerations into the advice that investment firms and insurance distributors offer to their clients5.

The European Commission's delegated acts6, allowed for the taxonomy regulation7 (EU Taxonomy) to apply from January 01, 2022. These regulations and the delegated acts are designed to help the investors in making informed decisions on economic activities which are economically sustainable; but do not disallow investments in activities which are ineligible under this EU Taxonomy. This is the first jurisdiction which has such taxonomical prescriptions in place. The Members of the European Parliament have sought a legislative proposal to include in the EU Taxonomy for sustainable activities any crypto-asset mining activities that contribute substantially to climate change, by 1 January 20258.

United States of America

President Biden's Executive Order9 on the responsible development of digital assets also requests reports from various US federal agencies which should address the effect of consensus mechanisms on energy usage. This order requested the various federal agencies exploring the short, medium, and long-term effects of new digital asset technologies, such as proof-of-stake cryptocurrency mining, on climate change and the energy sector.

With investors becoming more aware, they have expressed a need for more consistent, comparable and reliable information about how a registrant has addressed climate-related risks when conducting its operations and developing its business strategy and financial plan. Per the Securities Exchange Commission's (SEC) proposed rules10, outside the audited financial statements, (1) narrative disclosures about climate-related risks, their impact and how the company manages them; and (2) quantitative disclosures about greenhouse gas (GHG) emissions will now have to be made. Additionally, within the audited financial statements, there are disclosure requirements towards aggregate amount of climate-related costs both expensed and capitalized.


India, with its exceptional technological advancement in the finance space, and with being the cradle of several institutional investors and funds, now also has its regulator suggesting regulations for ESG ratings. As companies are being forced to integrate ESG with their business practices, the Securities Exchange Board of India (SEBI) is also aligning itself with the global practices. The SEBI released a consultation paper11 on January 24, 2022, focusing on evaluation and rating of ESG related parameters by ESG rating providers. The paper goes on to say, "since the activities of ESG ratings providers (ERPs) are typically not subject to regulatory oversight at present, increasing reliance on such unregulated ESG rating providers in securities markets raises concerns about the potential risks it poses to investor protection, the transparency and efficiency of markets, risk pricing, and capital allocation, among others."

This seems a step in the right direction and will bring a certain level of transparency and uniformity to the ecosystem. It has been reported that a total of 11 mutual fund schemes, with INR 13,000 crore rupees ($1.72 billion) under their management in India, have ESG as their theme12, which stresses on the need to regulate ESG rating process. The proposal is to have SEBI accredit these ERPs and has also suggested that every ERP should have at least one specialist in data analytics, sustainability, finance, information technology, and law. Factoring concerns related to interested parties, the proposed paper also seeks ERPs to formulate clear policies and make disclosures on their websites, to avoid conflict of interest. An ERP should not provide ESG ratings to its related entities or securities issued by them or the ERP.

Subsequently, SEBI has constituted an advisory committee13 on Environmental, Social and Governance (ESG) matters, whose terms of reference include enhancements in Business Responsibility and Sustainability Report14, ESG ratings and ESG investing.


We have witnessed that when it comes to ESG concerns, environment does find a lot of prominence, mostly following all the international commitments, signing of climate-change accords, and net-zero emission targets. However, with companies realizing that to bring in a competitive advantage they need sustainability, ESG issues are up higher, if not right on top, of board agendas. The need for social investing has never been greater, in the face of Covid-19 pandemic, the disparity in gender roles when it comes to workplaces became a lot apparent. The institutional investors have the scale, the wherewithal that is required for making a change in social inclusion, a reality.

It is not incorrect to say that the investors demands actually motivate the behavior of the institutions. While there is skepticism in regulatory push, the demands of the investors are being felt on the capital markets, which in turns drives the need for ESG to be integrated into business practice. The time to blend ESG into practice is now, and the world of finance is capable of driving the change.


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2. Christopher Bendiksen & Samuel Gibbons. The Bitcoin Mining Network – Trends, Composition, Average Creation Cost, Electricity Consumption & Sources. CoinShares Research. December 03, 2019. Accessible at:, last accessed on May 26, 2022, at 1515 hrs.

3. Supra note 1, at p. 5.

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6. A communication was first made in 2018, towards this. Communication From the Commission To The European Parliament, The European Council, The Council, The European Central Bank, The European Economic And Social Committee And The Committee Of The Regions Action Plan: Financing Sustainable Growth, European Commission. Accessible at:; last accessed on May 26, 2022, at 1859 hrs.

7. COMMISSION DELEGATED REGULATION (EU) 2021/2178 of 6 July 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation; Accessible at:; last accessed on May 26, 2022, at 1834 hrs; and, COMMISSION DELEGATED REGULATION (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives; Accessible at:; last accessed on May 26, 2022, at 1836 hrs.

8. REGULATION (EU) 2020/852 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088; Accessible at:; last accessed on May 26, 2022, at 2033 hrs.

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11. Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices (Proposed Rules), SEC; accessible at:; last accessed on May 26, 2022, at 2125 hrs. The Proposed Rules were open for comments till May 20, 2022, and then and amended version was released on May 25, 2022, open for public comments for 60 days from date of publication in Federal Register.

12.; last accessed on May 26, 2022, at 2138 hrs.

13.; last accessed on May 26, 2022, at 2146 hrs.

14.; last accessed on May 26, 2022, at 2154 hrs.

15. SEBI has mandated that the BRSR will be applicable to the top 1,000 listed entities (by market capitalization) for reporting on a voluntary basis for FY2021–22 and on a mandatory basis from FY2022–23.

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