A key governance issue in relation to crypto is whether there is a centralised entity within the operating structure that can carry out governance and be held accountable. The decentralised nature of some crypto structures, with no one person who is responsible or who can be held accountable, presents a key challenge to the ESG credentials of such crypto. Common ESG governance considerations might include whether:

• the management body takes into account sustainability issues in the course of business;

• the firm operates with tax transparency;

• financial crime, bribery and corruption risk is adequately managed;

• and whether the firm addresses diversity and inclusion.

Typically these considerations are addressed by a management body of identifiable responsible persons, or by a corporate entity that can be held accountable. It remains to be seen how these requirements will be applied and evaluated in the context of governance by code and software developers.

Further challenges may arise in the context of crypto structures that involve a loose network of unrelated corporate entities only held together by common policies, standards and agreements about respective roles but without being part of the same group. Specifically in the context of global stablecoins, the Financial Stability Board has set out recommendations which include governance requirements.

In a regulatory environment that is increasingly hostile towards crypto, those involved in the crypto ecosystem are really going to have to go the extra mile to show that crypto can deliver against stringent ESG criteria to become a legitimate asset class.