When financial sustainability takes a back seat

From "purpose-driven" to bankruptcy - a lesson from AppHarvest
Financial Sustainability

Written by Vincent McCarthy, CFA

In October 2022, on a podcast called “Managing the Future of Work”, Harvard Business School Professors Bill Kerr and Joe Fuller spoke with Jonathan Webb, the Founder and then CEO of AppHarvest, a company “committed to ESG principles and social impact, redefining and transforming American agriculture” [1].

The Harvard Business School LinkedIn post [2] read: “Agriculture technology firm AppHarvest’s business model ticks multiple sustainability boxes, from food security, land use, and climate resilience to workforce and regional economic development”. A critical sustainability box was not ticked – financial sustainability.

At the time, the stock was trading below $2 a share, far below the $10 price when it first listed on the NASDAQ stock exchange in 2020 via a SPAC deal (Special Purpose Acquisition Company), and a lifetime away from the 2021 high of around $38 a share.

Surprisingly, financial sustainability was not discussed on the podcast, given the AppHarvest stock price collapse and the huge controversy surrounding SPAC deals, including the misleading of investors.

On July 13th, Jonathan Webb, the founder of AppHarvest was replaced as Chairman and CEO. However, he would take up the position of chief strategy officer and would remain on the board of directors. 

On July 24th, AppHarvest announced a Chapter 11 bankruptcy filing “to support a financial and operational transition”. The stock [APPHQ] is now trading at 6 cents a share [07/08/23]. If a company cannot sustain itself financially, it won’t be around to make a positive impact.

AppHarvest, whose Board of Directors includes Martha Stewart, failed to deliver on its ambitions to transform agriculture. Crucially, they failed dramatically to deliver on the ambitious sales targets pitched to investors. Then, loaded with debt, there was nowhere to hide. The result, a wipe out for shareholders.

There is a natural excitement and enthusiasm to support new companies trying to tackle sustainability challenges. While failure goes hand in hand with innovation, at times there is a disregard for the financials and the responsibility to shareholders. Rather than basking in the public attention and waxing lyrical about purpose, company executives must prioritise financial sustainability, for the sake of all stakeholders.

Otherwise, investors are making a charitable donation to fulfil someone’s dream rather than an investment


[Appeared first as the editor’s note in Issue 15 of The ESG Factor Magazine]
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