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  • Heather Clancy

Even private firms are facing closer ESG scrutiny

"When food delivery startup Deliveroo made its initial public offering in the early spring, it was supposed to be the London exchange’s biggest public debut of 2021 — after all, the Amazon-backed venture was seeking a market valuation of $12 billion. Instead, it flopped, with shares off 26 percent during the first day of trading.

Central to the debacle were concerns over Deliveroo’s stance on shareholder voting rights and labor issues, an issue that has hung over Deliveroo for several years. The status of the company’s drivers was addressed among the risk factors in its IPO prospectus, and its decision to cling to the independent contractor model that has presented legal challenges for both Uber and Lyft — rather than treating them as employees — apparently spooked some would-be investors with ESG issues on their mind.

"Judicial decisions to retroactively reclassify riders would result in potential over our failure to comply with relevant employment and taxation requirements and associated obligations, which in turn could adversely affect our financial condition as well as our reputation," the prospectus notes.

Deliveroo’s fate underscores just how differently the private equity world and public markets have typically managed and responded to ESG disclosure, although the dynamics are shifting — thanks in part to forthcoming disclosure requirements in Europe. The IPO flop also should serve as a warning to entrepreneurs backed with funds from venture capitalists or private equity funds: Expectations are changing, especially for those seeking to issue an IPO or positioning themselves as an acquisition target. (Take heed, climate-tech entrepreneurs.)"

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