Strategy
In 2023 we built upon our initial ESG strategy created in 2022 and refined certain elements so that ESG is considered a core pillar of our business initiatives and company culture. We monitored our ESG framework that sets clear objectives and can be transparently measured to demonstrate our commitment to ESG. Our ESG Strategy is supported by a company-wide and Board approved ESG Policy, which requires mandatory acknowledgement by all of our CoinShares employees.
The three pillars of our strategy are:
• Sustainability: adopting climate change friendly standards and working towards reducing our CO2 footprint.
• Education: market leading information provider in the crypto ecosystem from novices to industry experts.
• Investing in the future: promoting and developing next generation talent from universities and nurturing existing personnel within the Group.
We aim to consider each of these in all our ESG initiatives, and also to promote them within the company wide culture of the Group.
These core pillars are crucial to our ability to be responsible and effective stewards of the digital asset ecosystem as cryptocurrencies are inherently political, social, and economic in nature. As a company we have always therefore been interested and invested in the development of initiatives in relation to digital assets and digital asset investing, particularly through the output of our Research arm. Finally, these pillars ensure that we are rightfully and actively considering our external impacts on the wider community and market outside of the digital assets environment.
Current Position
For the nascent cryptocurrency industry, CoinShares is considered in its formative stages of its ESG journey. We have therefore taken steps in 2023 (and the two consecutive earlier years) to peer assess our ESG credentials against other leading financial institutions. It is important to quantify where we are placed in our ESG journey, allowing us to quantify the progress made as we move forward and the industry around us evolves.
CoinShares completed the S&P Global Corporate Sustainability Assessment (“CSA”) that tested a wide range of ESG criteria, benchmarked scoring against some 600+ financial institutions such as banks and financial technology (FinTech) participants. The submission process provided useful insights into specific improvement areas for the Group in the future. Our 2023 ESG score is comparable to industry peers whereby we saw score improvements in the Corporate Governance and Risk Management topics on the back of tumultuous crypto market events, such as FTX and Celsius. However, there are further efforts and investments required to support our ongoing ESG efforts. For instance, in 2023 theGroup has engaged with a sustainability solution to build a complete carbon footprint picture for our office locations and to recommend any new ESG initiatives, such as emission reduction plans. Once these initiatives are implemented, management will define key performance indicators for the Group to measure their growth and improvement in the ESG space.
We completed a company first ESG Materiality Assessment to identify focal areas that are key to our long-term ESG Strategy. The results of this assessment help to organise our sustainability initiatives and to prioritise the ESG matters of the highest importance. The ESG Materiality Matrix is displayed below:
ESG Materiality Matrix
Sustainability & Output of Research Team
The digital asset industry is at the forefront of the technology to ensure a more efficient energy usage environment for financial services in the future, and we seek an active role in ensuring the potential of these advancements are widely known.
In 2023, the Research team published a “Bitcoin Mining Report” that showcases the sustainability improvements with the energy intensive Bitcoin mining. There have been efficiency gains of Bitcoin mining compared to earlier years. For instance, there has been an 8% improvement in efficiency over 2023 and over the past three years, efficiency was enhanced by 28%. There is a growing trend for Bitcoin miners to utilise renewable energy sources for their mining activities, which decreases the impact of carbon dioxide emissions on the environment. In Texas, where a significant proportion of Bitcoin mining occurs, renewable energy usage grew from 20% of total energy produced in 2017, to 31% in 2023 according to data from IEEFA. Finally, gas flaring for stranded energy sources such as oil rigs has been an increasingly serious problem because flaring excess gas contributes to approximately 406 million tonnes of CO2 emissions per year. Through innovative solutions, Bitcoin mining can alleviate this problem by housing mining hardware, along with the necessary generators, in containers and being able to operate in these remote and hard-to-reach locations far from established power grids. As global flaring currently comprises 1.1% of global CO2emissions, Bitcoin mining could reduce global flaring emissions to just 0.41% of global emissions.
In September 2022, the Ethereum network switched from proof-of-work to a proof-of-stake consensus model, also known as “The Merge”. The switch led to Ethereum’s network greenhouse gas emissions dropping by an estimated 99.97% according to the Cambridge Centre for Alternative Finance (CCAF)report published in December 2023. The CCAF estimates pre-Merge greenhouse gas emissions were about 10.3 MCO2e and post-Merge greenhouse gas emissions were 2.8 KtCO2e. Also, the Ethereum network is powered by roughly 48% sustainable energy, such as wind and nuclear energy. These Ethereum developments support the digital assets industry drive for improved sustainability
Cyber Security Risks and Hacking Risks
The further development of digital asset networks could lead to increased security risks. Many digital assets and their underlying networks have historically experienced security issues, hacks, and software errors. Such risks must be efficiently and successfully addressed so that bugs and security risks are mitigated to the greatest extent possible. Even if a high level of security is achieved, malicious actors could still successfully target digital asset networks and/or exchanges which may lead to financial losses to holders, as seen historically.
Malicious actors have in the past targeted platforms and exchanges to exploit them and are now also targeting the infrastructure for decentralised finance (“DeFI”) and various smart contracts. To address this risk, we are continuing to invest in our state-of-the-art cyber security processes and controls. These include but are not limited to a dedicated incident response team, 24/7/365 altering, estate monitoring and threat intelligence.
As an industry leader in our sector, it is important for us to protect ourselves and our clients against financial crime. We have strong financial crime processes and procedures that provide protection, but also identify bad actors and organisations. Due to the nature of the industry within which the Group operates, coupled with the nature of the services and products provided, a robust control environment is paramount to protect the Group’s stakeholders, ensure compliance with regulatory requirements of the Group, and allow for accurate and timely dissemination of information throughout the Group.
Cyber-security remains a critical focus for the Group. Significant investment in and ongoing improvement of the Group’s security posture is essential to align the infrastructure of the Group with its growth. The continuous improvements have been validated by the Group’s external information security audits and accreditations.
Since 2021 the Group has maintained its ISO27001 certification (international standard for information security management), evidencing adherence to a “best-practice” approach to the management of information security by addressing people and processes as well as technology. Company Personnel are required to complete mandatory Cyber Security training upon joining and at least annually so that they are well equipped to identify and take appropriate action for high-risk Cyber Security scenarios.
Ad-hoc security tests and attack simulations are regularly undertaken allowing the Group to ensure buy-in and understanding from all employees. The Group’s endpoint, mobile and perimeter protections are monitored on an ongoing basis to adapt to emerging threats and to ensure the Group remains protected in the ever-changing landscape of cyber security. Furthermore, the Group’s cybersecurity controls are routinely tested as part of the Group’s Compliance Monitoring Plan.
Growth & Development of Personnel & Company Culture
We aim to invest in a responsible manner to scale and preserve the company culture without adversely impacting future prospects, including the Group’s ability to retain and recruit personnel and to effectively focus on and pursue the Group’s short term and long-term objectives.
The culture within CoinShares is entrepreneurial in nature due to the novelty of the crypto assets industry. Our values of: Trust, Transparency, Collaboration, Respect and Integrity are ingrained into our CoinShares employees where it is vitally important to build a digital assets market fit for institutional investors that is both robust and well regulated.
Anti-Money Laundering and Terrorist Financing
The Group has a variety of systems and controls in place that allow for the ongoing monitoring and appropriate levels of control of all its digital asset holdings and positions with each of the exchanges and custodians it uses. This is to ensure that the Group and its clients are compliant with both local, national and international regulations, legislation and standards.
All exchanges and custodians with which the Group interacts for the purpose of either digital asset storage or trading are subject to stringent counterparty onboarding and ongoing due diligence checks. These are integrated fully with the Group’s internal systems prior to engaging in any kind of active relationship. Exchanges and Custodians are all subject to risk-based periodic reviews.
This risk of the Group is further mitigated by the fact that most of the Group’s physical asset holdings are in custody with regulated and reputable digital assets custodians in equivalent jurisdictions such as Zodia Custody and Komainu Jersey, which act at arm’s length to the Group.
The environment within which the Group operates is wide-ranging and there are both direct and indirect impacts from company activities. The Group aims to minimise its carbon footprint as much as possible and employs effective company stewardship to enable positive climate change action. The Group’s activities have limited direct environmental impact; however, we prioritise the issue because we know it is important to run our business in a way that minimises our ecological footprint and leaves the environment in a better state for future generations.
There has been significant negative press coverage in regard to the environmental impact of Bitcoin mining due to its high energy usage. It is important to highlight that the Group is not directly engaged in Bitcoin mining and the vast majority of our transactions in Bitcoin are off-chain. Generally, there has been a noticeable drive for the use of renewable energy sources for Bitcoin mining activities due to increased focus on sustainability by global events such as the Dubai COP28 symposium.
Green Investments
Through both our venture fund and balance sheet investments, the Group has invested in a number of innovative companies focused on accelerating the buildout and utilisation of renewable energy sources and energy management systems using cryptocurrency as a dual revenue generator and incentive mechanism to fuel adoption, a topic which our Research team has written about extensively over the years.
In 2021 CoinShares invested in the company MintGreen, which is a clean technology company that uses Bitcoin mining to monetise heat generation. MintGreen is focused on addressing two of the primary concerns related to cryptocurrency mining - sustainability and power costs. MintGreen builds, manages, and maintains industrial Bitcoin mining systems co-located with utilities and industrial plants to produce guaranteed income from two revenue streams - cryptocurrency and the sale of heat. MintGreen has built a proprietary solution to capture heat emitted from Bitcoin mining and sell it to buyers of heat.
The Group is an investor in Daylight Energy, which helps consumers upgrade their home energy footprint and incentivises energy saving through the issuance of points which can be redeemed for cash and other incentives. For instance, homeowners can use Daylight Energy to help install solar panels that produce gas and electricity without having to rely on power from the national grid, there by reducing homeowner power bills drastically in an environmentally friendly and sustainable manner.
Crypto Climate Accord
The Group remains a committed supporter of the Crypto Climate Accord, a private sector-led initiative committed to making the cryptocurrency industry 100% renewable. One of the objectives includes achieving net-zero emissions from electricity consumption by 2030. Inspired by the Paris Climate Agreement, the Accord brings together the crypto and FinTech industry to build a sustainable future for global finance with support from the United Nations Framework Convention on Climate Change(“UNFCCC”) Climate Champions.
Jersey Trees For Life
We continued our paid membership of the Jersey Trees for Life organisation by allowing CoinShares employees time away from work to clear paths and help maintain the health of the trees (Alder Collection Restoration) with the local Jersey community. This initiative assisted our local community in reducing our carbon footprint as well as preserving wildlife living in their habitats. The Alder Collection Restoration Project, an extension of the Alder Collection, which has been planted and maintained byJersey Trees for Life since the early 1990’s, is designed to protect and restore the trees, habitats of endangered species, and improve the livelihoods of thousands of people who will be able to enjoy the site in the future.
Office Environment
In 2023, the CoinShares employees in two of our locations moved into new office locations in bothLondon and Paris. The office moves were part of a cost reduction plan due to increasing office rents though the office amenities offered to staff in the new locations are of a high standard and the space allows for further employee headcount additions. The office floors offer a collaborative workspace for our employees and clients to ensure that fertile ideas are shared amongst the functional departments.The new London office is situated opposite the Bank of England, which signifies the intersection of traditional finance and the new digital assets industry.
As a technology driven company a crucial part of our success is providing our people with an optimal set of IT equipment. Having the right tools is a necessity to keep developing and maintaining the innovative products and services we offer customers and partners. That said, the Group endeavours as much as possible to maintain a sustainable consumption of physical electronic goods. The Group reuses as much of the IT equipment necessary for business operations as possible and ensures that every device gets used for its full product life before it is recycled.As a global organisation we aim to host meetings virtually to minimise the carbon footprint of Company Personnel.
Confidence and the highest reputational standards for the Group are a crucial part of our business and critical to our success. Trust and confidence are earned by acting responsibly and by meeting or exceeding expectations. Our Social impacts relate to the relationships held with our impacted stakeholders, including employees, clients, and the local community.
Our focus is on ensuring that we have the right people working in the most effective organisation structure to support the strategy of the Group - committed employees are the foundation of CoinShares’ success. Creating a stimulating, rewarding work environment where employees want to stay, and nurturing the next generation’s talents is critical to longevity and retaining the role of digital asset management market leader. CoinShares strives to be an attractive and responsible employer. Being responsible requires a long-term perspective. Skills development, diversity, compensation, and health are high-priority issues. Our work is governed by the applicable laws and regulations in the markets where the Group operates, as well as several policies such as guidelines for conduct, ethics, and human resources policies.
Wider Cryptocurrency Adoption
In lieu of the current traditional finance model, cryptocurrencies and digital assets are designed and developed for the entire mass market to adopt. The current traditional finance model caters for the developed nations who have stable economies that can manage low inflation risk whereas developing nations have high inflation risk leading to the devaluation of their citizens’ savings and incomes. Over half of the world lives in an economy of authoritarianism and/or recurring double-digit inflation. CoinShares is a staunch supporter of including billions of people in the global economy and giving them sovereignty over their money. Hence, we are proud to offer Exchange Traded Products (“ETPs”)to clients to cater for this type of financial inclusion.
According to World Bank data, 24% of the adult world population do not have a bank account and this percentage rises to 29% of the adult population in developing nations. This unbanked population do not have access to banking and bank fees for remittances to send money cross-border are exorbitant(i.e. range between 5-30% per transaction). The cross-border remittance of money is a real use case for developing nations due to people working in developed nations to send money home to families in developing nations. Cryptocurrencies such as Bitcoin remove the intermediary such as banksand other financial institutions to allow the unbanked population to keep more of their hard-earned income and gives them more financial freedom and sovereignty over their money.
In 2023, CoinShares continued its contribution to the Massachusetts Institute of Technology (MIT)Digital Currency Initiative (DCI). The Group committed to donate US$500,000 over the course of 4 years from 2021 to support Bitcoin open-source software development and advance the security of the Bitcoin protocol. This contribution to the initiative supports a growing team of senior, specialised open-source developers focused on systemic threat mitigation and rigorous improvements to Bitcoin’s underlying infrastructure, including code audits, increasing automation, and novel research into Bitcoin’s long-term economic security. CoinShares joined other industry leaders, such as Google and the Bank of England, as part of a new DCI Guardian’s Circle committed to long-term foundational funding of open-source development and systemic security improvements to the Bitcoin protocol.
The year of 2023 has been a year of consolidation and risk aversion for the digital assets industry after the 2022 market events of FTX and Celsius. Risk Management has been high on the agenda for the Group and we have evidenced this by augmenting the Audit and Risk Committee in terms of its roles and responsibilities. Also, there has been a more stringent focus on the compliance with national laws and regulations for the digital assets sector, such as the EU Markets in Crypto Assets (MiCA) adoption. We see this as a positive step for our industry because this allows improved investor protection and confidence, which in turn drives further cryptocurrency adoption.
Employee Benefits
The Group strives to provide a competitive salary and benefits package to all eligible employees according to job requirements, jurisdiction and individual performance. Our employees have the opportunity to participate in the Group’s success through our incentive programs such as the EquityIncentive Program (“EIP”), of which all levels of employees are qualified to receive EIP. Employees are also eligible for consideration for a discretionary bonus annually, the sum of which is determined byoverall company performance. The Group actively monitors the attrition rate of staff (13% voluntary resignations in 2023) to identify any functional areas of improvement. Exit interviews are conducted to gain further insights and to improve retention rates. We have in place paid leave and flexibility schedules where our employees are eligible for paid leave and can benefit from flexible working the 24/7 nature of the digital assets industry.
The benefits package that the Group offers our employees varies from one operating jurisdiction to another to reflect local market conditions and legislation. Typically, this includes benefits such as a defined contribution pension plan, medical insurance, income protection/disability insurance and life insurance provided either via private insurance schemes or social security contributions. In some locations, there are fitness and wellbeing benefits offered with regular health assessments made available.
Wellbeing
Employees who utilise a good work-life balance are better equipped for high performance in the work environment. CoinShares regularly reviews employee benefits against market benchmarks to ensure they are fit and proper to support staff wellbeing. The Group embraces workforce diversity and promotes productivity, irrespective of physical and geographical locations. The Group allows colleagues to work from home and provides other forms of flexible working arrangements designed to protect health and safety. To consider and accommodate employee requests in an equitable, consistent, and sustainable manner, the Group has implemented a flexible working application (“FWA”) to allow employees to work from home depending on the nature of their job, the requirements of the business, and their own circumstances.
In 2023, the Group set up Social Committees in each jurisdiction order to ensure that there is more team-based collaboration in an informal setting. The aim of the committee is to improve the employee networking effects within the organisation and maintain high engagement levels from our employees.The events organised were inclusive in nature and encouraged participation from all levels across the organisation. There is a ring-fenced yearly budget allocated to the Social Committees to organise diverse events and we look forward to such events in the upcoming years also.
Diversity and Inclusion
CoinShares is committed to promoting a diverse, equal, and inclusive working environment, where all employees feel valued and respected for who they are and for the work they contribute. TheGroup’s Employee handbook outlines the responsibilities of staff in relation to equal opportunities, diversity and inclusion. We instil the principle of an inclusive workplace culture with zero tolerance for discrimination or harassment. All harassment is strictly prohibited, and a reporting channel is provided to employees as a forum where the Group can handle and investigate any potential reports of harassment. The Group’s Human Resources policies strictly comply with all applicable employee local laws and regulations. As an equal opportunity employer, the Group is committed to providing equal opportunities to all employees and applicants. We create a safe working environment of mutual respect for employees that values individual contribution and recognises diversity. CoinShares upholds local laws on protecting staff from discrimination. We pride ourselves on being a meritocracy where each person is evaluated based on personal skill and merit. Moreover, the Group prohibits the use of child labour and forced or compulsory labour at all its units and suppliers.
Learning and Development
CoinShares seeks to establish a workplace that provides continuous learning to employees to equip them with effective skills, knowledge, and training to meet their full potential. The Group provides new joiners with a comprehensive induction training to ensure new employees clearly understand the Group’s values and culture and efficiently integrate into the working culture. The induction programme provides information on the Group’s structure, an introduction to the different departments of the Group, an overview of company policies and procedures and other important HR-related activities. Also, the induction offers training on CoinShares’ compliance and cyber security policies and procedures.
CoinShares also provides annual training as part of the Continuing Professional Development (“CPD”)scheme to employees on financial industry ethics, compliance, anti-money laundering, insider trading, conflicts of interest, diversity and inclusion, information security and cyber risk awareness. The courses are administered and tracked by the Compliance and Human Resources teams.
CoinShares supported our Company Personnel when external courses were held. CoinShares supported a number of employees to obtain their Chartered Financial Analyst (CFA) qualifications across Levels 1, 2 and 3, Investment Management Certificates, ACCA and CGI IFA qualifications. All personnel were given time off to attend the examinations, additional study days and financial support to access extra study materials. Our most recent successes were individual employees completing their CFA Level 1 and their Investment Management Certificate respectively. In addition to the professional qualification support, CoinShares offers all staff access to online training via the platform provider Coursera in a wide range of programmes from financial management for non-finance managers to leadership and development and Python programming.
Industry Leadership
We provide deep and thought-provoking research into the digital assets industry utilising our subject matter experts in the Research department. Our research is aimed at a wide spectrum of cryptocurrency amateurs, enthusiasts, and institutional investors. We have published research on the impact of crypto mining, promoting the usage of efficient and renewable energy in crypto mining technology. CoinShares has explored opportunities to invest in renewable power generation in underutilised globally distributed locations for optimisation of energy usage in the crypto ecosystem.
External Community
We look for opportunities where CoinShares can have a meaningful impact, with a focus on preserving local culture. We collaborate with community non-profit organisations, neighbourhood groups, and other special initiatives for local residents.
In 2023, a cohort of London office employees volunteered in a Corporate Social Responsibility Day where an afternoon was spent helping the local Queen’s Park London community clearing and cleaning local gardens in community hubs, nursing homes and private residences of the elderly. This was a positive action for CoinShares that showcased our support for the local community and supporting greener initiatives as part of our ESG strategy. Our employee volunteers enjoyed the gardening day in the summer sun and this allowed for an informal team building activity. A donation of £250 to the Queen’s Park Community Council was made as part of our efforts.
In Jersey, our CoinShares Chairman committed a donation of £500 to the Healing Waves foundation. Healing Waves enables individuals despite their condition and/or disability both neurological and physical to access the ocean in a safe way to participate in water sport activities around the shores of Jersey. Healing Waves firmly believes that being in, under, on, or around the water leaves oneself calmer with a more focused mindset, it can give one’s mind a break from the usual busyness and overstimulation of life and the foundation truly believes the water can do the same for any of the Jersey community who participates.
We are proud to fund a three-year title sponsorship of the Jersey Race Club, the club which dates back to 1832, and where horse racing has continued in one form or another with the exception of the two world wars and the 2020 season. The sponsorship provides the financial support required for the Club to continue to host local horse racing events, affecting both local and off-Island jobs amongst jockeys, trainers, stable personnel and catering. As horse racing is a regulated sport, the welfare of its human and equine participants is considered integral to the Club. The Club meticulously treats and cares for its horses by employing its team of expert stablemen, the provision of vets and other welfare professionals.
In the London office, office desk usage was given at no cost to charity workers from the Horseferry Foundation. The foundation’s activities include the advancement of education, and the protection and conservation of the environment for the benefit of children and young people.
We intend to continue contributing to the global crypto community via research, events, and advocacy throughout 2024 and beyond and look forward to reporting on these efforts.
