Today we are used to looking at the environmental impact of every aspect of our personal and professional lives. How does trading stand up?
Trading has certainly not faced as much scrutiny from the green movement as other parts of the finance and business worlds. But that does not mean that the way you trade has no environmental implications.
Consider the fact that the vast majority of trading today relies heavily on the internet. As traders will know, the picture many people have of trading, involving “alpha males in color-coded jackets stand[ing] in trading pits, hollering at each other” is no longer accurate, points out financial journalist Michael Lewis in his book about trading Flash Boys. “The U.S, stock market now trades inside black boxes, in heavily guarded buildings in New Jersey and Chicago”.
This reliance on technology means that trading contributes to the huge impact on the environmental that the internet has the potential to cause, mainly through the its massive use of energy.
“How we build and power our quickly growing global digital infrastructure is rapidly becoming central to the question of whether we will able to transition to renewable energy in time to avoid dangerous climate change,” says Greenpeace its 2017 “Clicking Clean” report on the internet and the environment.
Then there is the fact that particular kinds of trading have specific implications for the environment. For example, some forms of high-frequency trading – typically ones that rely on split second responses to market moves – require specialised fibre-optic cables running in as straight a route possible. This can mean drilling through landscapes and under the sea.
“Two hundred and five crews of eight men each…were now rising early to figure out how to blast a hole through some innocent mountain, or tunnel under some riverbed,” says Lewis in a description of such a cable being installed in Flash Boys. “It already had the feeling of a living creature, a subterranean reptile, with its peculiar needs and wants.”
Crypto's energy drain
Cryptocurrency trading has the potential to have an especially significant impact on the environment because of the processing-heavy nature of the blockchain technology that underpins it.
The Bitcoin network now consumes more energy than Austria, Chile and Czech Republic, according to the International Energy Agency. Meanwhile Ethereum, as it has recently changed the way it works in order to reduce its energy usage, is a bit better than in this regard.
Jack Ma, the founder of Chinese e-commerce giant AliBaba recently spoke out about this issue. Blockchain and other related technologies need to take society in a direction that is “greener and more inclusive”, he said in a keynote speech at the World Artificial Intelligence Conference.
Given that the environmental implications of trading mostly concern its infrastructure, responsibility for making trading more environmentally-friendly mainly lies with financial institutions, technology companies, regulators and governments.
But there are a few things that individual traders can do to help.
Avoiding Bitcoin is probably a good idea – and given its history of severe fluctuations in value, is possibly a smart move for other reasons too.
How the big boys rank
Traders can also choose to use internet-related businesses in the course of their work that have a good environmental footprint.
Apple and Google both get an “A” grade in Greenpeace’s “Clicking Clean” report. Apple receives particular praise for making sure its data centres run entirely on renewable energy. It also locates some of them in cold environments so that they can feed the heat they generate into local heating systems. Amazon, meanwhile, gets a “C”, largely because of its lack of transparency in this area.
Finally, traders can also choose to invest in environmentally-friendly assets. Luckily, much of the the world is becoming more mindful of environmental issues. This raises the stock of business that help tackle them, or at least do their their best not to worsen things. So doing so may also help to provide you with a profit.