Impact-investing pioneer Amy Domini: Wall Street should tap ‘controversial’ SPACs for ESG investing

• Pro-ESG investors should try using vehicles like SPACs to raise funds, not shun them
• SEC should rethink the purpose of corporations, and change reporting guidance accordingly; current SEC reporting rules are relics of the Great Depression of the 1930s
• Investors should insist corporates put a price tag on their ESG projects or claims

Wall Street should use “controversial” investment vehicles such as special-purpose acquisition companies (SPAC) to help drive environmental, social and governance (ESG) investing, and insist that corporates pin dollar values on ESG claims deemed immeasurable, said social-investing pioneer and fund manager Amy Domini

SPACs – listed companies created for the purpose of buying or merging with existing firms, even privately held ones -- have caught a lot of bad press, but should not be dismissed outright because they can be used to help private, pro-ESG companies raise funds from the public more quickly than usual, Domini said, in an interview with Wealth & Society advisor and TBLI Group chairman Robert Rubinstein. An example is AppHarvest, she said; the Morehead, Kentucky-based indoor grower of on-the-vine and beefsteak tomatoes went public in February 2021 after merging with Novus Capital, a NASDAQ-traded SPAC; AppHarvest shares rose 44% on debut, and counts BlackRock amongst its top investors, filings show.

Investors – institutional and individual – are increasingly aware of ESG issues, and motivated to park their monies where their values are; still, the pool of investable assets that pass muster with this crowd remains limited, as some are put off by legacy items on these companies’ books that fail ESG standards. SPACs can make more pro-ESG companies available for public investment. These firms may allow pro-ESG firms to reach the public quickly for funding, without “the onerous give-ups venture-capital (VC) funds impose on them,” she said. VCs typically skim 20% off the profit of the sale of a start-up they back. 

Corporates with pro-ESG solutions face obstacles and delays bringing their innovation to market, even as the clock ticks down towards irreparable climate damage. Tapping SPACs as a funding solution for ESG projects has “been bumpy at the start,” but is an opportunity unique to this business generation that could “democratise” the process of investing in ESG-related ventures, and get the funding they need to reach consumers faster, Domini said.  

To be sure, socially responsible investing of the kind advocated by Domini has its detractors. Tesla CEO Elon Musk had called ESG "a scam" in May, for example, after his electric-vehicle company was booted off the S&P ESG Index.

Domini, 72, is widely acknowledged in financial circles as a doyenne of social investing; she founded the New York City-based Domini Impact Investments, which runs five funds with more than $2 billion in assets under management at end-September that aim to drive “positive outcomes for our planet … while seeking competitive returns.” She cut her teeth in impact investing at the height of US investor revolt in the 1980s against South Africa’s apartheid rule, entering the public-speaking circuit with her 1984 book Ethical Investing; she spoke on how to spot and measure discriminatory actions, and to identify – and divest of -- the American companies aiding and abetting them. 

What Domini learned from years of impact investing is the importance robust data play in driving a movement. Useful data should be “ascertainable, significant, and can be answered with a ‘yes’, ‘no’ or numeric” response.

“We have an absolute price tag on something we call non-monetary,” and there are experts within corporations that know down to the penny what everything costs, said Domini. “We have to become better at creating monetary valuations on some things that we haven’t created monetary values for, and that will inform the total conversation on what kind of a (social) good” that is.

Regulators also must rethink and redefine the purpose of corporates in terms of how they contribute towards a more sustainable world, then adjust reporting standards required of them, she said. Current SEC reporting guidelines, with their focus on revenue and profit “to the exclusion of a great many others things” are relics of the Great Depression of the 1930s; the Great Depression began when a lack of corporate transparency helped trigger the 1929 stock-market collapse. But corporates seem to have forgotten the origins of SEC reporting rules, instead putting these growth- and income-driven standards on a pedestal, and creating a “god-like figure called the investor" that must be satiated no matter the cost to society. That won't do, said Domini.

Financial trades are 11 times the size of global trade, Domini said, and the world GDP is 10% that of financial markets; that makes finance too powerful a tool to merely serve the good of the investor. It also makes finance the appropriate sector to connect countries, sectors and individuals to forge a better, more sustainable world.

“My goal is to have investors be part of the solution; we will get there by creating the standards and using them for the investment process.” 

Click here for full interview.