Zumo feeds back to the European Securities and Markets Authority (ESMA) on assembled industry-side query points relating to the implementation of crypto-asset sustainability disclosures under the EU’s Markets in Crypto-Assets (MiCA) regulation.

Since 30 December 2024, MiCA authorised crypto-asset service providers (CASPs) – businesses who provide crypto-asset services to the EU market – have been obliged to provide templatised sustainability metrics covering the crypto-assets they support.

Yet, with CASP registrations still in their early days, elements of operational detail in how such sustainability disclosures should be constructed – not to mention monitored and enforced – remain at a correspondingly early stage.

While, as our canvassing of CASPs on this topic has demonstrated, we expect this situation will evolve fast and for companies overall to comply quickly, the number one request from industry remains detailed operational guidance on how this topic should be treated.

At the end of last year, Zumo engaged directly with ESMA, the EU regulator mandated with drafting the regulatory technical detail of implementation.

As part of our ongoing liaison, this article summarises some of the current areas in which we believe industry could benefit from additional clarification and guidance, based on our conversations with CASPs on this topic over the past six months.

CASPs interested in further information on the solutions that Zumo offers in this area are encouraged to get in touch to discuss their requirements further.

Selected outstanding MiCA sustainability disclosures questions 

What are the limits of acceptable methodology / best effort interpretation?

The industry issue

Current understandings fall on a continuum anywhere from ‘finger in air’ estimation all the way through to belief that there is a single acceptable methodology. CASPs want regulator-defined clarity on what is compliant methodology to be sure they are meeting the requirement.

Our view

Having discussed this both with ESMA, and with representatives of the European Commission, we understand from those conversations that there is not yet a single standardised methodology that must be used, but nevertheless that any methodology employed must be fully transparent, documented, and capable of meeting the referenced guidance of the European Sustainability Reporting Standards (ESRS), plus the current Regulatory Technical Standard’s (RTS’s) explicit guidance that methodology should be ‘rigorous, systematic, objective, capable of validation and applied continuously.’ At the same time, we already observe sustainability disclosures that provide only very generic and short methodology descriptions and no information (or link to it) on applied input data and sources on asset basis.

From an industry perspective, CASPs need a reinforcement of this expectation, and we believe it would be helpful to explicitly clarify this position by communicating that, while there is not a universal standard methodology, regulators will have expectations that the methodologies relied on by CASPs for their compliance should be capable of meeting the tests laid out in the current RTS. We also believe it may also be helpful to flesh out the intended spirit of some of the RTS wording: for instance, for ‘capable of validation’, read ‘CASPs/preparers of white papers should ensure that any solution they implement is transparent and publicly documented to the extent it can be understood and validated by an informed third party’ or for ‘applied continuously’, read ‘CASPs/preparers of white papers should assure themselves that any solution they implement is capable of providing regular assessments and data on an ongoing basis’. 

How does ESMA expect multichain tokens to be treated?

The industry issue

The current RTS does not offer explicit guidance on the preferred treatment where an asset (e.g. USDC) is transacted on multiple base layers. We’re finding that market participants often seek guidance on this topic.

Our view

The template table provided in the Annex to the RTS does not appear to admit entry of more than a single value – e.g. in box S.8 for energy consumption, our methodology to date has been to perform an individual calculation on the major base layers on which a multichain token is offered, and then aggregate those base layer calculations for a single consolidated disclosure (reference example, USDC white paper). We believe that such an approach (a) avoids any end user confusion arising from multiple disclosures for the same token ticker (b) means that impacts are accurately represented, as they offer a view of the activity across base layers.

Given ESMA’s feedback that the table is not intended to be rigid to the extent we had understood, we believe a sensible proposal to clarify the issue for industry would be (a) to specify an aggregated disclosure as the default standard (b) as an added optional element, to allow disclosures to break down figures by individual base layer, listed out beneath the aggregate figure, within the same disclosure. This mirrors the approach already adopted by industry in existing EMT white papers.

What is the expected treatment for wrapped tokens?

The industry issue

The current RTS does not offer explicit guidance on the preferred treatment where an asset (e.g. WBTC) is ‘wrapped’ – that is to say, the original asset is replicated for use on another blockchain. Again, we’re finding that market participants often seek guidance on this topic.

Our view

The calculation for wrapped assets should be analogous to every other token that represents another asset (e.g., a gold token for which we would only account for the energy consumption associated with the blockchain and not the asset gold itself). For example, wrapped Bitcoin (WBTC) is a 1:1 backed asset issued as an ERC-20 token on the Ethereum blockchain. Accordingly, the disclosure for this asset should only include the impact of the token itself on Ethereum and not the impact of the Bitcoin network itself. Otherwise, the energy consumption of WBTC would be as high as the energy consumption of the Bitcoin network itself, which would be an example of a large extent of double counting given that the Bitcoin network only exists once and the impact of the mining associated with the Bitcoin is already captured by the disclosure on Bitcoin itself.

What is the expected treatment for Layer 2 architectures?

The industry issue

The current RTS does not offer explicit guidance on common blockchain architectures such as ‘Layer 2’ designs (example: Arbitrum/Ethereum), where a second layer is used to funnel aspects of blockchain functioning such as transaction execution while remaining dependent on the underlying ‘Layer 1’ for security assurances and final settlement. Industry could benefit from specific guidance on methodology in these more complex instances.

Our view

Assessments of Layer 2s need to take a combined view of the impact both of the relevant activity on the Layer 1 and of the footprint of the Layer 2. 

The approach we suggest here in order to calculate the footprint of a Layer 2 network is to aggregate (a) the activity on the Layer 1 that is directly linked to the Layer 2 (b) the impact arising from the Layer 2 infrastructure itself. We suggest it may be sufficient for purposes of general guidance to point out to market participants that they should be combining the Layer 1/Layer 2 view in such instances, and that any solution they implement should operate on this basis. 

What about methodology conflicts between white paper (issuer) and CASP disclosures?

The industry issue

As outlined in the acceptable methodology question, there are different methodologies available to estimate the environmental impacts of crypto-assets. Coupled with the varying timelines for CASP authorisation and requirements for white paper availability, this leaves the possibility that different methodologies may have been used, and therefore differing numbers provided (a) between a CASP disclosure that pre-dates the preparation and notification of an asset’s corresponding white paper (b) between CASP disclosures for the same asset where they have been prepared at different times and using different estimation methodologies. Industry would benefit from a clarification of how this variance is to be viewed.

Our view

As mentioned in relation to acceptable methodology and best efforts, our view is that the determining factor in such instances should be the use of an acceptable methodology that is transparently documented and of sufficient rigour, and not that it must be identical to every other source. 

Indeed, we believe the regulator should take a practical view that, in the absence of any top-down standardisation, there will inevitably be some degree of variance in disclosures owing to different methodologies. We believe it should be highlighted that all market participants have the right to implement their approach to comply with the regulation (e.g., through white papers, own calculation or data sourcing from external providers) as long as it is an acceptable one within the limits of best efforts and acceptable methodology as discussed in our separate answer on this topic. 

How regular are disclosure reference periods?

The industry issue

The current RTS does not explicitly specify mandatory reference periods for disclosures, beyond the fact that disclosures should be updated ‘at least annually’ and also in case of material change. 

Market participants therefore often struggle how to define the best reference period (12 months vs. calendar year vs. annualised data over a reference period of the last weeks before the disclosure) given the need for updates and the ongoing introduction of new tokens to service offerings throughout any given period, which results in tradeoffs between comparability and historic data.

Our view

The simplest way to address this confusion would be to always show annualised data over a reference period of a few weeks (1-4 weeks) before the disclosure to ensure comparability and reflecting the latest market developments while not mandating that it needs to be the last calendar year or even the last 12 months given that a newly launched token might only have existed for less than 12 months and the data needs to be annualised based on the available time frame. This approach is in line with what are commonly known and long-standing trackers for climate impacts of Bitcoin (e.g., the Cambridge Bitcoin Electricity Consumption Index: https://ccaf.io/cbnsi/cbeci). 

What is the start date of reporting requirements?

The industry issue

We’ve observed that some market participants believe that because they must report ‘at least annually’ they need not report until 12 months after the point of their CASP authorisation. There is nothing in the current RTS that clarifies this.

Our view

We do not believe that this is the intended interpretation of the RTS – and if we are correct, we believe it would be helpful to remind industry that their sustainability reporting requirement represents a Day 1 requirement at the point of their CASP authorisation, regardless of the fact that the data drawn on to do so must reference a prior period when the CASP was not yet authorised. 

What constitutes a ‘material’ change?

The industry issue

The current RTS references the need to update disclosures in case of material change, but does not offer a test to determine what constitutes such a change. We believe that industry would benefit from further clarification on this matter.

Our view

Given that the methodology requirement ‘to be applied continuously’ already implies a mechanism of ongoing assessment, we believe it would be appropriate to define the threshold at which there is a material change in the reported sustainability metrics sufficient to require an update to the existing disclosure. We believe this should be fair and proportionate, and would welcome some guidance from ESMA as to what it considers is material in this instance.

What is the treatment for multi-service CASPs? 

The industry issue

Some CASPs needing to prepare website disclosures for their service offering offer different types of services for different assets – e.g. custody only for some assets, and trading for others. Given the different activity-based tests that apply to determine the extent of sustainability indicator reporting, these participants are often unsure how they should treat the variation in their service offering.

Our view

In our view, the reporting for an individual asset should consider the activity performed in relation to that asset. So if a CASP operates a trading venue, but for an individual asset, offers custody only, they should assess the sustainability disclosure requirements for that asset as if they were a custodian, and not a trading venue. With this said, we believe this imposes an extra burden of analysis on CASPs where they have sizeable offerings – generally, solution providers will supply the full list of required metrics for any given covered asset and, for this reason, we do not believe multi-service CASPs should be disadvantaged or discouraged should they prefer to simply apply a blanket approach and potentially over-report for certain assets.

What should be the formatting of website disclosures?

The industry issue

Market participants may wonder the exact set-up they should use to fulfill the broad public, free, downloadable requirement (and particularly the question of a simple pdf download vs a dedicated web page).

Our view

Given the speed of incoming requirements, we believe it is appropriate that CASPs should be able to meet website disclosure requirements with a simple pdf download – though future iterations may wish to consider iframe or dedicated web page specifications for purposes of more effective illustration and comparison.

In summary, we believe that the above topic areas represent a representative range of the issues we have encountered in conversation with CASPs across the industry in the past year. 

By drawing them together in a single place, we hope it can serve as a useful reference resource for regulators to consider, and potentially publish Q&A or other guidance where it would be helpful for industry clarity and compliance.