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Experts believe the way crypto-asset service providers (CASPs) in Europe operate will change significantly with the introduction of new environmental, social and governance (ESG) disclosures.
The new climate-focused requirements, although not as burdensome as they could have been had some legislators got their way, will be a step change for firms in the crypto space, as they prepare for compliance with the EU’s long-awaited Markets in Crypto-Assets (MiCA) regulation.
According to Vyara Savova, senior policy lead at the European Crypto Initiative, this will trigger a “substantial change”, as the industry is moving from “a largely unregulated, or at least fragmented in its regulation, environment to one with extensive sustainability requirements”.
The MiCA regulation stipulates that the mechanisms used to validate transactions in crypto-assets can have significant adverse impacts on the climate and the environment.
To mitigate these effects, environmentally friendly consensus mechanisms should be implemented, and the regulation obligates issuers of crypto-assets and service providers to identify and disclose any principal adverse environmental impacts.
The European Securities and Markets Authority (ESMA), in collaboration with the European Banking Authority (EBA), has been tasked with developing regulatory technical standards (RTS).
These standards, which will define the content, methodologies and presentation of sustainability-related disclosures, are intended to address adverse climate and environmental impacts, and include key energy indicators.
"It would be prudent for firms to familiarise themselves with the disclosure process,” said Daniel Taylor, research and policy lead at Zumo Enterprise, which provides essential infrastructure for financial institutions to adopt sustainable digital asset solutions.
“Many CASPs are already struggling to meet other regulatory requirements, so they may need to work with third-party data providers until there is more clarity on white paper obligations”.
The leap forward
"Environmental issues are among the most debated topics in this space,” said Jerome Dickinson, founder at crypto legal advisory avroytech.
Dickinson pointed out that some "crypto-hostile" MEPs have even called for a ban on Bitcoin, advocating MiCA regulations that would prevent the listing of environmentally harmful crypto-assets on EU-regulated exchanges.
The compromise reached, however, was that CASPs will need to conduct environmental reporting.
“These entities already handle extensive reporting, and this adds an environmental dimension to their obligations,” said Dickinson.
“Much of the focus is on the environmental impact of consensus mechanisms, such as methods used to validate blockchain transactions, often relying on data centres, which can have significant environmental implications.”
This will be a big change for crypto players operating out of EU member states, even if they are advocates for a greener society.
“Previously, crypto projects had little to no obligation to disclose their environmental impact or energy consumption,” Sofia-based Savova pointed out.
“Now, they must comply with a comprehensive set of requirements that include detailed reporting on carbon emissions, energy efficiency, and, where relevant, alignment with ESG standards.”
Ultimately, she said, this will mean entirely new processes, increased costs and likely the hiring of specialised staff or external consultants to manage compliance.
“For many projects, especially smaller ones, this transition may be quite challenging.”
"Complying with MiCA represents a significant shift for the industry,” agreed Taylor. “The positive aspect is that it marks an initial step forward.”
He pointed out that MiCA currently focuses on investment disclosures rather than mitigation actions, adding that ESMA has “indicated that this will evolve over time”.
“As the area develops, the requirements are expected to become more practical and targeted,” he said.
For now, MiCA focuses primarily on crypto exchanges and issuers, but the European Commission is set to draft a report on its interim progress by mid-2025.
“This report is expected to provide insights, including perspectives on whether Bitcoin poses an environmental challenge, with possible further policy actions on the horizon,” said Dickinson.
“Currently, the situation resembles a lobbying battle, with the crypto industry and its critics vying to shape the narrative. While the truth likely lies somewhere in between, it’s clear that the Bitcoin mining industry is already undergoing a significant green transformation, with greater reliance on renewables and exponentially more energy-efficient hardware,” he added.
Dickinson anticipates a broader policy debate and a clash of narratives between industry advocates and sceptics, some of whom argue for shutting down crypto operations altogether.
“At the core of this debate is the reliance on data centres, a concern not unique to crypto, but also relevant to energy-intensive technologies like AI. As demand for data centres grows, so will the push for increasingly energy-efficient hardware."
Ongoing challenges
Crypto projects face several challenges in meeting MiCA’s ESG disclosure requirements, Savova warned.
For example, the industry lacks established standards for calculating and reporting energy use and carbon emissions.
“Furthermore, projects must also present this information in a standardised format to allow comparability across the market, which in itself is still evolving in the EU context.”
According to Savova: “These requirements could be especially burdensome for smaller firms with limited resources, potentially creating an even more uneven playing field in the industry.
“Additionally, navigating these disclosures without well-established industry practices will require firms to invest in both the infrastructure for tracking ESG metrics and the knowledge to interpret and report them correctly,” she said.
Despite this, she pointed out that ESG and sustainability have been critical topics in Europe, especially under the previous European Commission mandate, which prioritised green finance as part of the European Green Deal.
“This focus has influenced many projects in the region, including crypto ones, to start considering the environmental impacts of their operations, especially those with more visible footprints, such as mining operations.”
Nevertheless, Savova warned, although awareness around sustainability has been growing, the new MiCA requirements “push firms beyond mere consideration to concrete action and regular reporting”.
“This effectively marks a shift from voluntary sustainability efforts to mandatory compliance.”
