An Insights of SPAC and Sustainability ESG
Two of the most popular concepts in the business world nowadays are SPACs and sustainability ESG. Many studies and surveys are being conducted to analyze the relationship between SPAC and sustainability goals.
Even without deep analysis, the basic share prices show that the SPACs with efficient ESG-related policies are able to perform better than the companies with non-ESG SPAC programs.
Since sustainability goals continue to be a major focus of the business agenda of SPACs around the world, it is important to analyze this relationship in detail.
What is a SPAC?
A special purpose acquisition company (SPAC) is also called a blank check company. It is a shell company that allows businesses to go public without going through the traditional IPO process.
SPACs gained massive popularity in 2020. At the same time, the concept of sustainability reporting and ESG also gained unprecedented attention. As a result, it has become important for SPACs to have sustainable development as one of the core features.
Importance of SPACs in the Sustainability Revolution
Technology has always played an integral role in the financial development of different sectors. This is the reason why most experts agree on the fact that SPACs are one of the leading factors in bringing about a sustainability revolution.
These are not only theoretical claims, but the practical trend of SPACs also supports these claims. Electric vehicles are one of the most popular sectors for SPACs.
In 2021 alone, over 24 EV-related companies went public via SPAC mergers in the USA. As a result, SPACs are paving the way for companies to have an impact on a large scale and implement transformative solutions that are cleaner, healthier, and more equitable.
How can SPACs be critical to meet sustainability goals?
Following are the top three reasons why SPACs are considered critical to meeting sustainability goals:
1. Large Capital
SPACs can provide fast-growing companies with a large amount of capital quickly to ensure they focus on future goals, including ESG.
In a conventional IPO, companies have to market their listings on the basis of their existing financials. On the other hand, a SPAC merger can use the future projections of revenue and profit to create disruption in change-resistant sectors, such as energy and transportation.
It is also important to note that most of the venture capital now backs businesses that have positive word-of-mouth around them. Yet there is not enough capital dedicated to scaling the established technologies. In such a situation, SPACs can be used to justify the early-stage investment.
2. More Choices for Investors
The increasing number of sustainability SPACs means investors have more opportunities to invest in companies that match their specific requirements and values. This is the reason why many investors interested in ESG allocate a significant amount of capital to sustainable investments.
It simply means that SPACs are expanding the scope of their investor base to include consumers who want to back sustainability leaders. When investments are driven by a specific mission, companies are able to make long-term value-creation strategies instead of being focused on short-term profits.
With more capital at their disposal, ESG-based SPACs are able to outperform traditional SPACs, especially when merger announcements are made.
Transparency is important for any public company, and focusing on ESG is one of the best ways for the SPAC targets to be more transparent and accountable to the public than the private entities.
The boards of a diverse public company are made more diverse and up to the new standards set by regulatory authorities.
4. Better Alignment With Investors
SPACs allow entrepreneurs to adjust their goals, including sustainability values, as per the investors. It allows the founders to retain the investors for a long time.
Otherwise, a common issue with going public is that investors often tend to leave after getting their profits, causing an unplanned impact on the entire company.
The bottom line is that SPACs and sustainability reporting go hand in hand to drive sustainability measures for different types of companies. It is understandable that SPACs are not the only way through which SPACs can achieve ESG goals, but it is definitely a reliable method.
The importance of SPACs is enhanced by the fact that drastic changes are happening quickly in the corporate world. In order to keep up with these changes, some businesses tend to ignore sustainable growth, especially in the traditional IPO process.
Whereas SPACs allow investors as well as entrepreneurs to successfully go public while also paying attention to ESG.