Pricing Sustainability in Decentralized Finance: An Empirical Analysis of the ESG Premium in Digital Assets

Abstract

The rapid expansion of digital assets has created a conflict between technological innovation and environmental, social, and governance (ESG) principles, particularly concerning the energy consumption of legacy consensus mechanisms. This has led to the emergence of "sustainable" cryptocurrencies, raising the critical question of whether the market financially rewards sustainability. This study quantitatively investigates the existence and magnitude of an "ESG premium" in the digital asset market. A quasi-longitudinal study was conducted on a panel dataset of 20 cryptocurrencies (10 sustainable, 10 traditional) from January 1, 2021, to December 31, 2024. A detailed, transparent composite ESG score was developed to measure sustainability. The primary analysis utilized a panel data fixed-effects regression model to assess the relationship between asset prices and ESG scores, controlling for market capitalization, trading volume, market-wide indices, and key technological factors like protocol age, scalability, and developer activity. To address endogeneity and validate causality, we employed models with lagged independent variables. Further robustness checks were performed across bull and bear market sub-periods. A GARCH (1,1) model was used to analyze differences in price volatility. The primary regression model reveals a statistically and economically significant positive relationship between ESG scores and cryptocurrency prices. A 10-point increase in the ESG score is associated with a 4.1% price premium (b=0.0041, p < 0.001), even after controlling for technological modernity. This finding remains robust in models using lagged variables and across different market cycles. GARCH analysis confirms that sustainable cryptocurrencies exhibit significantly lower price volatility. In conclusion, the findings provide strong, robust empirical evidence for a persistent ESG premium in the cryptocurrency market. This suggests that investors price in the perceived long-term viability, reduced risk profile, and ethical alignment of sustainable assets, signaling a maturation of the market where non-financial, sustainability-focused metrics are integral to asset valuation.