MiCAR and ESG: Requirements and implementation for crypto asset service providers

The Markets in Crypto-Assets Regulation (MiCAR) provides a uniform legal framework for crypto assets in the European Union (EU). It aims to increase investor protection, ensure market integrity and provide companies with legal certainty through clear regulatory requirements.

At the same time, MiCAR entails new sustainability requirements, in particular for Crypto Asset Service Providers (CASPs). These requirements relate to the disclosure of sustainability indicators of crypto assets in order to make potential adverse effects on the environment and climate visible to customers.

Regulatory requirements of MiCAR: These indicators must be reported

MiCAR came into force on June 29, 2023 and has been fully applicable since December 30, 2024. CASPs must therefore disclose sustainability indicators. In accordance with Article 66 (5) MiCAR, they are obliged to publish information on the main environmental adverse impacts of the consensus mechanism.
In accordance with Article 66 (6) MiCAR, the European Securities and Markets Authority (ESMA) has defined specific requirements and indicators within regulatory technical standards (RTS) based on the non-specific requirements of MiCAR. The latter are divided into four groups:

• “General information”: This information must be published by all CASPs under all circumstances and includes, for example, details of the CASP and quality information relating to the crypto asset.
• “Mandatory key indicator”: This is probably the most important indicator: the energy consumption of the crypto asset per year (expressed in kWh). This indicator – including a description of the associated survey methodology – must also be published in any case.
• “Supplementary information”: This group of indicators extends the sustainability indicators to include information on the share of renewable energy in energy consumption and greenhouse gas emissions. It also includes information on energy consumption and emissions at the crypto asset’s transaction level. This information only has to be published if the key indicator exceeds a threshold of 500,000 kWh per year. In addition, not all CASPs are obliged to comply with the “Supplementary information”.
• “Optional information”: Within this group, further indicators are defined whose inclusion in reporting is purely optional. Thus, this data is generally irrelevant in the implementation practice for CASPs.

ESMA has also specified how this information must be disclosed. This also includes making this information available free of charge and in a comprehensible manner via a public website. Companies are obliged to review the information at least once a year and to update it immediately in the event of material changes. 

The last requirement in particular may mean high costs for CASPs in terms of operational implementation, as continuous monitoring must be established to monitor material changes and the publications are therefore not a “one-time effort”.

These disclosure obligations under Article 66 (5) MiCAR are intended to increase transparency in the crypto market and ensure that investors and supervisory authorities receive reliable ESG information.

Implementation of ESG requirements: Heterogeneous networks make measurement complex

There are various challenges for CASPs when it comes to the practical implementation of the requirements. Due to different types of consensus processes (e.g., proof-of-work or proof-of-stake) or even different forms of DLTs (e.g., DAG or blockchain), the networks of CASPs are extremely heterogeneous. This must be taken into account in the methodology for collecting sustainability indicators. As a result, it is necessary to develop different models and – while observing the same basic principles such as neutrality, transparency and consistency – to conduct individual analyses and calculations for the networks. There is no “one fits all approach”.

At the heart of the methodology is the ESMA definition, which defines energy consumption as follows: “Total amount of energy used for the validation of transactions and the maintenance of the integrity of the distributed ledger of transactions, expressed per calendar year”. Accordingly, two elements must be taken into account for the calculation: 

1. All activities that contribute to the network’s integrity.
2. All processes that are relevant for the validation of transactions.

So-called “nodes” are responsible for the tasks within DLTs. These nodes operate hardware to fulfill this function and thus contribute to the energy consumption to be calculated.

Depending on how exactly a DLT works, scientific literature and practical applications offer different models for determining energy consumption. There are two main approaches:

1. Top-down model: analysis of empirical data at network level (e.g., hash rate, network energy consumption) to estimate overall network usage. This method enables a comprehensive assessment of overall consumption by taking into account key parameters such as the average efficiency of the hardware used.
2. Bottom-up model: use of crawlers and software tools to identify the active nodes and calculate the energy consumption based on the hardware used. Analyzing individual network nodes allows for detailed conclusions to be drawn about the energy consumption of specific consensus mechanisms.

In order to make the best possible use of these models, high-quality data sources are essential. A key variable within both models is the energy consumption of individual nodes in the network. This can be reconstructed via measurements by making assumptions about the hardware used and carrying out measurements under “real conditions”. In order to ensure the quality of the data, investigations should only be conducted in ISO-certified test centers with appropriately calibrated measuring instruments.

Challenges and best practices: What needs to be observed when reporting according to MiCAR

The implementation of ESG requirements requires a strategic approach for companies. Important aspects in the individual fulfillment of sustainability reporting obligations are

• Data quality and transparency: The data sources and methods used must be comprehensible. Assumptions or estimated values must be identified.
• Certified measurement methods: Measurements should be performed with certified measurement instruments to ensure compliance with legal requirements.
• Operationalization of the calculation: CASPs must invest in monitoring and reporting tools to efficiently collect and update their ESG data, in particular in order to meet the “material change” requirement.
• Conflicts of interest: Companies must carefully check whether there are any conflicts of interest when selecting external service providers or using data sources that could lead to accusations of greenwashing.

Conclusion

MiCAR poses new challenges for CASPs, particularly in the area of ESG transparency. Implementation requires technical, methodological and organizational adjustments. However, a proactive approach can not only ensure regulatory compliance, but also strengthen the trust of market participants and create long-term competitive advantages.