(Bloomberg) -- A London-based money manager has just attached an ESG label to a Bitcoin exchange-traded fund, in a move that has environmental experts doing a double take.

Jacobi Asset Management says its Jacobi FT Wilshire Bitcoin ETF (Ticker: BCOIN NA) is an Article 8 fund, which under EU regulations means it has to “promote” ESG. It’s the latest addition to the Article 8 fund category, which Bloomberg Intelligence estimates now covers about $6 trillion of assets across an ever wider array of financial products. 

Never before have the EU’s environmental, social and governance investing rules been applied to an ETF whose primary goal is to let investors speculate on the value of Bitcoin, according to data tracked by Bloomberg. Martin Bednall, a former BlackRock Inc. executive who became chief executive of Jacobi last year, is telling investors that the ETF will be “fully decarbonized.”

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The ETF is domiciled in Guernsey and listed in Amsterdam, after other jurisdictions posed too many regulatory hurdles, according to Bednall. The London Stock Exchange has been off limits, due to restrictions imposed by the Financial Conduct Authority, he said.

In the meantime, Jacobi is looking at other markets in Europe to cross-list the ETF, and is also “having conversations in Asia, Africa and the Middle East,” Bednall said.

Fund managers making ESG claims in the EU face a regulatory crackdown after the European Securities and Markets Authority announced in July it was launching a so-called common supervisory action with local authorities across the bloc. The decision marks a shift in tone amid growing concern that ESG investing rules aren’t being properly applied.

The Jacobi ETF counts as an ESG product because of investments in renewable energy certificates, according to Bednall. The idea is that by purchasing the RECs, Jacobi will be supporting enough renewable energy projects to make up for the greenhouse gas emissions of the energy used to mine the Bitcoin tracked by the ETF.

There are few undertakings that are as energy intensive as mining for Bitcoin. The computing power needed to extract units of the cryptocurrency is estimated to use up about 140 terawatt-hours (TWh) a year, which is roughly what the nation of Norway generated in 2022. 

The Cambridge Centre for Alternative Finance estimates that only 38% of Bitcoin mining is done using sustainable energy, including renewables and nuclear, compared with an industry estimate of about 60%.

Matthew Brander, a senior lecturer in carbon accounting at the University of Edinburgh Business School, says using RECs to fulfill a decarbonization strategy “isn’t credible.”

“Buying a REC doesn’t represent any real-world relationship between digital assets and renewable power,” he said in an emailed reply to questions. 

That’s particularly true when the RECs are unbundled, as is the case with the Jacobi certificates, according to Anders Bjørn, lead author of a June 2022 article on RECs published in Nature Climate Change, a peer-reviewed science journal. 

The decarbonization claim “is only credible if Jacobi Asset Management can show that their purchasing of RECs causes an equivalent amount of renewable energy to be generated,” Bjørn said by email. “That seems highly unlikely, as the company purchases unbundled RECs to match the electricity consumption from Bitcoin mining.”

Adam White, secretary-general of Netherlands-based RECS Energy Certificate Association, says relying on RECs to offset energy consumption “would lead to a convoluted and disconnected market.”

“If investors in one market are buying certificates from energy produced in another market, for products made in a third market, then there is very little market signal of renewable energy use by Bitcoin miners,” White said. “The miners should just buy the energy they use as renewable — backed by the correct certificates — and then sell ‘renewably powered Bitcoin’.”

For that reason, he says he “would discourage investors from buying energy attributes certificates to offset the emissions related to the energy used to make the product they are consuming.”

Bednall says he’s aware of criticisms of market instruments used to mitigate carbon emissions, and that Jacobi opted for RECs after looking into the available options.

“RECs were preferred over offsets, as the most material part of our carbon footprint is in relation to the electricity consumption of the Bitcoin network,” he said.

Since listing in mid-August, the ESG Bitcoin ETF has attracted just over $1 million in investments.

--With assistance from Akiko Itano.

(Adds comments from RECS Energy Certificate Association.)

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