When talking about IPOs, most folks envision instant billionaires. However, a UK IPO last month was dubbed “one of the most disastrous IPOs in memory” and “a case study of how not to do an IPO.”
Deliveroo was hyped as the largest offering to debut on the London Stock Exchange since 2011 with an initial valuation of GBP7.6 billion (390 pence/share). By the end of the first day, shares were down 26% and still hovering around that low a week later.
Wow, or perhaps oops. Perhaps an even bigger “wow” is that reports now indicate investors’ fears revolved to a large extent around a specific social matter: treatment of gig workers/employees.
The company was already facing legal action in a handful of European countries concerning the legal status of its delivery riders, of which the company has 50,000 in the UK and in the neighborhood of 100,000 riders globally. UK courts apparently have been split on the issue of workers being employees rather than independent contractors. Deliveroo disclosed this business risk in its Prospectus:
…business would be adversely affected if our rider model or approach to rider status of our operating practices were successfully challenged or if changes in law require us to reclassify our riders as employees.
This may be the first case of meaningful specific ESG IPO impact on potential investors.
This tale may present a conundrum for companies in disclosing ESG matters. Certainly, reporting financially material matters is not discretionary, and it appears that potential downside of worker classification was determined by Deliveroo to be financially material, thereby requiring disclosure. In that sense, one could say this is really not an ESG disclosure matter. At the same time, it could have a chilling effect on companies considering voluntary disclosures about meaningful ESG risks since investors may be evaluating those more critically than in the past.
Confidentiality surrounding IPOs presents another challenge in the ESG context. Stakeholder engagement and input is generally an important part of companies identifying social impacts and assessing their materiality for purposes of ESG disclosure. Engaging stakeholders while concurrently maintaining confidentiality can be tough, if not fully barred.