Are impact crypto assets a new emerging asset class for sustainable and impact investors?

“Traditional sustainable investing is struggling with reliably measuring and verifying impact. Can blockchain and tokenization technologies provide a reliable solution? The Impact Crypto Index, proposed by Veronika Vinogradova and Mariya Gubareva , is the first empirically constructed index of crypto assets explicitly aligned with the UN Sustainable Development Goals and enables investors to access impact-related themes and digital innovation without replicating conventional market risk. Sustainable and impact investing has expanded rapidly over the recent years, reflecting a shift in investor preferences toward aligning financial returns with environmental and social impact. According to the International Institute for Sustainable Development , 85 per cent of investors now consider sustainability a central element of their investment strategy. Despite this growth, the field continues to face persistent challenges. Inconsistent environmental, social and governance (ESG) ratings, greenwashing concerns and weak impact measurement frameworks create information inefficiencies, distort capital allocation and undermine investor trust. Blockchain technology and tokenization offer a potential solution to these challenges. Digital assets governed by smart contracts embed transparency directly into financial infrastructure, enabling automated verification, traceability of transactions and reduced monitoring costs. Such features help mitigate information asymmetries and improve the credibility of impact claims, while simultaneously broadening access to capital for projects and initiatives aligned with the United Nations Sustainable Development Goals (SDGs). In our recent paper we examine whether impact-oriented crypto assets exhibit distinct economic characteristics that justify their consideration as a new emerging asset class. We construct an Impact Crypto Index (ICI) composed of digital assets with explicit environmental and social mandates and analyse its risk-return profile, volatility dynamics and interdependence with major cryptocurrencies and traditional indices. Our findings suggest that the ICI can serve as a meaningful diversification instrument, particularly when combined with the S&P Clean Energy Transition Index , extending the portfolio opportunities for impact-oriented investors. What are impact crypto assets? Impact crypto assets are largely represented by blockchain-based tokens designed to channel capital toward initiatives that generate measurable social and environmental benefits alongside financial returns. Many of these projects are explicitly aligned with the SDGs, incorporating sustainability objectives directly into their underlying financial model. By leveraging distributed ledger technology and programmable smart contracts , such assets can enhance transparency and traceability, enabling investors to observe how funds are deployed and to assess whether stated impact commitments are being fulfilled. These assets take different forms and governance structures. Some are native tokens created specifically to finance sustainability-oriented ventures and may incorporate incentive mechanisms linked to activities such as renewable energy production, carbon reduction or ecosystem restoration. Others are structured through decentralised autonomous organisations ( DAOs), where token holders participate in governance and collectively determine the allocation of resources to social or environmental initiatives. A further category includes non-fungible tokens (NFTs ). As unique digital certificates recorded on a blockchain, NFTs can represent funding rights, milestone verification or stakeholder participation, thereby establishing a durable and auditable record of capital flows and associated impact outcomes. Constructing the Impact Crypto Index For our analysis, we construct a set of impact-oriented crypto assets characterised by an explicit commitment to sustainability objectives by evaluating crypto asset whitepapers, reports from the United Nations Development Programme (UNDP), the Global Impact Investing Network , the International Institute for Sustainable Development and the World Economic Forum, as well as independent academic assessment. We investigate each asset’s stated activities and governance structure to assess its alignment with, and contribution, to the SDGs. The final sample includes a range of blockchain-based instruments, such as native blockchains, coins, tokens and DAOs that address a wide range of themes, including climate mitigation, decarbonisation, decentralised science and sustainability-oriented decentralised finance. We compare their performance to Bitcoin, representing a proof-of-work-based benchmark; Ethereum, reflecting a more energy-efficient blockchain architecture without an explicit ESG mandate; and traditional equity indices, including the S&P 500, MSCI World, S&P Global Clean Energy Index and the Dow Jones Industrial Average. Such approach enables us to evaluate the role of impact crypto assets within both the broader digital asset market and conventional equity markets. Volatility, co-movement with other assets and unique features Our findings indicate that the ICI exhibits a more moderate volatility profile than Bitcoin and Ethereum, suggesting comparatively lower risk exposure within the broader crypto-asset universe. At the same time, the ICI remains economically linked to major cryptocurrencies, particularly over medium- and long-term horizons. Sustained price movements in Bitcoin and Ethereum are often mirrored in the ICI, reflecting shared market dynamics and common risk factors. This relationship, however, weakens over shorter horizons, where co-movement becomes less pronounced and more variable. By contrast, the ICI demonstrates generally lower correlation with traditional equity indices compared to other crypto currencies . While some association with broad market benchmarks can be identified over longer timeframes, short-term linkages remain limited. The weakest overall relationship is observed with the S&P Global Clean Energy Transition Index, suggesting that impact crypto assets and clean energy equities are influenced by distinct underlying factors. Implications for diversification and hedging These results suggest that the Impact Crypto Index may offer meaningful diversification benefits for impact-oriented investors, which extends existing findings . Its relatively low short-term co-movement with major cryptocurrencies provides limited but potentially useful tactical diversification within crypto portfolios. Notably, diversification effects appear stronger when the ICI is paired with Ethereum rather than Bitcoin, reflecting differences in its sensitivity to underlying crypto-market risk factors. The ICI shows much greater diversification potential in combination with traditional equities indices, especially with sustainability-focused equity benchmarks such as the S&P Global Clean Energy Transition Index. Despite their shared sustainability orientation, the two do not exhibit consistent co-movement. Consequently, incorporating the ICI into sustainability-oriented portfolios may broaden thematic exposure and mitigate concentration risk within conventional ESG equities. At the same time, the ICI demonstrates limited hedging opportunities compared to other crypto currencies. Its tendency to co-move with both crypto and equity markets reduces its capacity to provide sustained downside protection. While short-term hedging benefits may emerge at very brief horizons, these effects decline over time. Accordingly, the ICI may function as a tactical allocation tool but is less suited to long-term hedging positioning. The effect of market conditions Notably, we also observe that the diversification properties of the ICI vary across market conditions, which supports the results of previous research . During periods of financial stress or heightened uncertainty, such as the 2021–2022 downturn, the ICI becomes more closely aligned with both major cryptocurrencies and traditional equity markets. Correlations increase, and diversification benefits diminish, as assets respond to common macroeconomic shocks. Under such conditions, the ICI’s capacity to serve as a defensive allocation within a portfolio is limited. By contrast, in more stable or recovery phases, such as 2023–2025, the interdependence between the ICI and other asset classes weakens. Correlations decline, and the index exhibits greater relative independence from both crypto and equity markets. In these environments, its diversification potential strengthens, particularly over medium- and longer-term investment horizons. Our findings suggest that the ICI may function as a meaningful diversification instrument within broader portfolios, including sustainability-focused allocations. By providing exposure to impact-oriented digital assets that are not perfectly aligned with traditional equity markets, the ICI enables investors to access impact-related themes and digital innovation without replicating conventional market risk. Beyond portfolio construction, the emergence of impact-oriented crypto assets helps also broaden financing channels for initiatives aligned with the SDGs. When appropriately structured and governed, such instruments have the potential to mobilise capital toward environmental and social priorities while offering impact-focused investors additional tools to manage risk and align portfolios with purpose. This blog is based on Are impact crypto assets a new emerging asset class for sustainable and impact investors? , published in Finance Research Letters . This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment. 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