Performance of ESG SPACs

Abstract

PurposeThe authors examine one special focus of Special Purpose Acquisition Companies (SPACs), namely environmental, social and governance (ESG) related investments. The authors document the performance of SPACs with and without ESG focus.Design/methodology/approachThe authors collect data, from several sources, on 1,737 SPAC IPOs formed between 2003 and 2022. A SPAC's focus on ESG is classified based on declared focus in Securities and Exchange Commission (SEC) filings and in post-merger annual reports. The authors examine operational and financial performance of SPACs with and without ESG focus.FindingsIn the study's sample, only 50% of SPACs that announced an intention to acquire an ESG target ended up consummating a merger with an ESG private firm. ESG SPACs exhibit worse operating performance than non-ESG SPACs. Furthermore, they experience 11.6% lower 1-year post-merger excess returns than their non-ESG counterparts.Originality/valueThe study provides an examination of ESG firms that came to market via mergers with SPACs, which is an alternative method to traditional initial public offerings (IPOs). The study also provides a comparison of both operational and stock performance of ESG and non-ESG SPACs.

Guest editorial: A short review of the role of ESG activities in business and research

“…Datar et al . (2024) examine the relationship between the ESG focus of Special Purpose Acquisition Companies (SPACs) and their performance.…”

“…The authors emphasize that involvement in M&A deals with ESG-active targets may improve performance indicators of acquiring companies in an emerging Chinese market. Datar et al (2024) examine the relationship between the ESG focus of Special Purpose Acquisition Companies (SPACs) and their performance. Unlike a traditional initial public offering (IPO), where the issuer has existing business operations, in a SPAC IPO, the SPAC is a blank-check company without any business operations that is formed by sponsors, who raise capital in a public offering with the goal of subsequently merging with a private company.…”