Lockdowns have fueled a surge in food-delivery businesses, so the initial public offering (“IPO”) of Deliveroo plc (“Deliveroo”) — a UK equivalent to DoorDash Inc. — on the London Stock Exchange was highly anticipated. But on its first day of public trading, Deliveroo’s stock dropped over 25%. Were ESG (Environmental, Social, and Governance) concerns to blame?
There are many factors that drive valuations and market reactions to IPOs, and this blog isn’t the place to come for stock tips. But some analysts have speculated that potential ESG issues could have undermined expectations. Specifically, the “S” in ESG includes social concerns over Deliveroo’s classification of its riders under the UK’s employment laws and the risk that gig economy businesses will face greater headwinds as court cases continue, and legislative efforts seek, to shift the balance in favor of workers’ rights.
Deliveroo’s tough day in the market comes just weeks after the UK Supreme Court ruled that Uber BV’s (“Uber”) drivers are “workers” under UK employment laws, rather than independent contractors, meaning that while they did not have full employment rights, they were nevertheless entitled to the minimum statutory wage and paid vacation. Such developments can have significant impact on businesses with narrow profit margins that rely on carefully constructed workforce models. Publicity from high-profile cases and politicians who seize on issues of inequality and workers’ rights vs. big business can also have a significant impact on public perception of a business brand.
Deliveroo is facing challenges similar to Uber’s. In 2017, Deliveroo won a case before the UK’s Central Arbitration Committee, which ruled that riders are self-employed (as opposed to “workers” or “employees”), but it remains in the cross-hairs of legal challenges. Many commentators believe that Deliveroo will be the next domino to fall after the landmark Uber case. Even if it survives the lawsuits, future legislative changes might shift the tide.
There is no doubt that many consumers appreciate the benefits of meals delivered to their door, now more than ever. And many workers in the gig economy are attracted by the flexibility that these business models offer. But it is a fine balance, and the Deliveroo IPO serves as a reminder that concerns over ESG issues, such as worker rights, can tip that balance to threaten a company’s brand or even its entire business model.