Hi, I'm Rachel Carpenter, the CEO of Intrinio. In this article, we will be talking about SPACs, ESG, and open data.
Recently, the SEC, or Securities and Exchange Commission, released two significant proposals related to these concepts.
First, let's start with a refresher. A SPAC is a "special purpose acquisition company."
How does a SPAC work? A shell corporation goes public on a traditional stock exchange and then acquires private companies, which, by default, becomes public without going through the conventional initial public offering process.
Popularized by investment mogul Chamath Palihapitiya, SPACs have become all the rage over the past few years as privately held companies have headed into public markets earlier in their life cycle instead of seeking private equity or venture capital financing.
However, many SPACs have been falling apart, and some people think they resemble pyramid schemes – I'm looking at you, Nikola, which went public under the blank check company VectoIQ Acquisition in 2020.
Innovative or scammy? It's controversial, and when you add in the warrants and units that also trade publicly alongside the underlying stock, they are a bit complex. So you can understand why reliable, accessible, open data is essential for SPAC investors. We'll come back to that in a minute.
Many investors and regulators have started to analyze companies from this perspective, relative to looking at traditional financial metrics, to analyze risk, growth, and the company's efforts toward social good outside of classic financial gain.
Those bullish on the ESG trend feel that its importance has been picking up speed ever since 2019 when Jamie Dimon, alongside his colleagues at "The Business Roundtable," stated, for the first time ever, that corporations should put social responsibility above profit. This was big.
Bears often feel that ESG is just another way for Wall Street to package its offerings and collect fees along the ways from investors.
Much discussion also surrounds the subjectivity of ESG ranking. For example, should a company like Tesla be ranked high because of all the carbon emissions they reduce with their vehicles? Or should they be ranked lower due to biodiversity loss and toxic waste that flows out of the lithium mines fueling the batteries that power their cars?
Regardless of which side of the fence you're on, the beauty of ESG data is that, ultimately, it will provide individual investors with the information needed to make these decisions.
Okay, back to the SEC proposal announcements.
The first was for "The enhancement and standardization of climate-related disclosures for investors."
The rule would require companies to tag climate data in a "structured, machine-readable data language," specifically in a language called XBRL or eXtensible Business Reporting Language.
What does that mean? We'll come back to XBRL in a minute.
The second SEC proposal was "To enhance investor protections by special purpose acquisition companies (or SPACs)."
It would require SPACs to tag all information disclosed in a structured, machine-readable data language, specifically the XBRL programming language.
Okay, the TLDR: this requirement would mean that SPAC and ESG related data are digitized instead of on paper and are much more accessible and open to investors.
The key to all of this is the XBRL language. XBRL is a powerful way to take data and information previously filed in a PDF or literally on paper and make it structured, digitized, and machine-readable.
Here's what happens when we move away from paper and into a more innovative, digital filing system: we increase data efficiency, timeliness, and accuracy while reducing duplication.
Digitized data enables more advanced and streamlined analytics that benefit corporations, investors, and really - everybody. This digitization, in turn, unleashes the floodgates of innovation by making underlying data more accessible.
And besides, paper and PDFs? Really?
Also, might some of these companies be trying to hide something by burying critical financial information in old-school stacks of paper and PDFs? What does all of that really mean? That by digitizing this data, we are actually lowering the cost of capital.
This streamlined filing system has powerful economic impacts and saves government agencies like the SEC billions of dollars annually.
As exciting as this is for investors and data nerds like me, it is a bit of a long road. These SEC proposals are not set in stone or approved yet.
XBRL programming is also complex, and corporations will typically fight back against any regulations that create more work for them.
However, this is an excellent sign that the market is demanding more open data and transparency and that the SEC is listening.
If you've got strong opinions on SPACs, ESG, or open data, contact us so we can discuss.
Thanks for reading!