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The Imperative of ESG in MiCA

ESG regulation in MiCA

Previously, we have covered some aspects of the adoption of the MiCA in Estonia and highlighted the key steps in preparing the application. When reading about MiCA, then it becomes clear that the ESG topics are somehow left out of the scope.

As we believe that ESG aspects are an integral part of a good compliance culture, here is a brief overview of how ESG topics are reflected in MiCA regulation.

1. Addressing Climate Concerns

When the European Parliament and the Council of the European Union set forth MiCA, their emphasis on Environmental, Social, and Governance (ESG) factors marked a pivotal moment in regulatory frameworks.

As a matter of great importance, already at the beginning of the MiCA document, Article 7 underscores the paramount significance of Environmental, Social, and Governance (ESG) factors in compliance industry, particularly in the context of consensus mechanisms validating transactions in crypto-assets. It's acknowledged that these mechanisms could wield significant adverse impacts on the climate and the environment.

Thus, the directive urges the deployment of more environmentally sustainable solutions while mandating thorough identification and disclosure of any adverse environmental impacts by issuers of crypto-assets and crypto-asset service providers.

The European Supervisory Authority (European Securities and Markets Authority) (ESMA) in cooperation with the European Supervisory Authority (European Banking Authority) (EBA) is charged with the crucial task of crafting regulatory technical standards to elaborate on sustainability indicators and energy metrics, ensuring comprehensive disclosure of adverse environmental impacts and climate-related concerns.

2. Strengthening Environmental Oversight

Further underlining the environmental agenda, Article 110 empowers the Commission to adopt regulatory technical standards formulated by the European Banking Authority (EBA) and ESMA. These standards pertain to the content, methodologies, and presentation of information in crypto-asset white papers, focusing on principal adverse impacts on the climate and environment stemming from the consensus mechanisms used in issuing crypto-assets.

3. Underlining ESG in Whitepaper Requirements

Within MiCA's framework, the prioritization of ESG considerations is evident in its stipulations regarding crypto-asset white papers.

Articles 6, 19, and 51 outline the necessary content, methodologies, and presentation of information relating to the adverse impacts on climate and the environment arising from consensus mechanisms. This information shall be publicly accessible and addressed in whitepapers, ensuring transparency and accountability within the crypto-asset ecosystem.

ESMA, collaborating with EBA, is tasked with developing regulatory technical standards to govern the disclosure of sustainability indicators, further cementing the integration of ESG principles into crypto-asset regulations.

4. ESG imperatives for Crypto-Asset Service Providers

It is important to note, that CASPs are also required to implement ESG topics in their operations. At the moment, for example in the context of the Estonian MLTFPA (§ 10), ESG-related issues could be viewed as one part of the mandatory risk assessment.

However, based on our substantial experience related to cryptolicensing in Estonia, the regulator has not paid much attention to the subject of ESG when processing business licenses

MiCA Article 66 mandates crypto-asset service providers to proactively disclose information concerning the principal adverse impacts on the climate and environment resulting from the consensus mechanisms utilized in issuing crypto-assets. This disclosure, should be displayed on their websites, enhances transparency and empowers stakeholders to make informed decisions.

It is also mentioned that ESMA, in conjunction with EBA, is entrusted with the formulation of regulatory technical standards governing the content, methodologies, and presentation of this disclosed information, underscoring the commitment to ESG integration.

5. Conclusion: Embracing ESG Compliance

In conclusion, MiCA heralds a new era of regulatory oversight, where Environmental, Social, and Governance considerations are at the forefront.

MiCA underscores the importance of embedding ESG principles into the fabric of crypto-asset regulations. As we navigate the evolving landscape of digital finance, adherence to ESG principles not only fosters sustainability but also safeguards against adverse environmental impacts, ensuring a resilient and responsible financial ecosystem for generations to come.

When applying for MiCA CASP licence, we suggest to think and act profoundly, and integrate ESG policy in your tailored compliance framework.


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