Responsible Investment Officer - ACTIAM
When companies are acquired by a SPAC and listed, they are not subjected to the same audits as a regular IPO. The fact is that during a regular IPO, investors are given far more insight into a company’s financial position. Critics say that, due to the lack of a prospectus, investors in a SPAC are potentially running a lot of risks without the company being transparent about this.
One of the most written about examples is Nikola Motors, the company that you mentioned as well. The manufacturer of electric lorries merged with a listed SPAC last year, supported by major international investors. Shortly after the IPO, the share price collapsed following rumours of fraud. This was partly due to a video which showed an apparently functioning electric lorry which, in reality, had been pushed down a hill.
“SPACs are not a panacea or the only funding method for stimulating sustainability.”
There is, however, also a dissenting view that stresses the positive impact of SPACs. Unlike a traditional IPO in which companies have to offer their listings based exclusively on their current financial data, a SPAC can rely on future projections of sales and profit. This is especially relevant for companies that focus on technological developments, e.g. in the field of sustainability. Although ever more “traditional” capital is being allocated to sustainable technologies, SPACs can meet a capital need to scale up sustainable technologies and thus contribute to the transition to a cleaner world.
ESG Core Investments’ IPO in Amsterdam on 12 February 2021 is a good example. ESG Core was taken to Damrak (Amsterdam) by Infestos, a green investment fund. The IPO generated €250 million
and must lead to the take-over of a European company with a green profile within the next two years. ESG Core’s prospectus describes several areas in which possible acquisitions will be made, e.g. energy transition and water purification.
Apart from ESG Core, there are other SPACs that focus exclusively on green technologies. Manufacturers of electric vehicles and related products, such as Nikola Motors, are popular investment categories in that regard. It is, however, too soon to actually measure the impact of SPACs on the success of these companies.
SPACs are not a panacea or the only funding method for stimulating sustainability. Given the huge challenge of transitioning to a more sustainable world, it is actually important to grab any opportunity to scale up green technologies. SPACs are an innovative way to achieve these goals, provided companies offer sufficient transparency and take account of several aspects of sustainability in their internal business operations.
The latter is not a given for companies targeting green technologies, as Tesla has shown over and over in the past few years with controversies about governance and in the supply chain. It is therefore important for investors to ask themselves not only how SPACs can capitalise on green opportunities, but also whether they are accurately mapping the risks. This goes for both the internal business operations of a SPAC, e.g. the remuneration policy, but also for envisaged acquisitions.