Investing Essentials LGBTQ+ Friendly Investing – Investopedia

LGBTQ+ friendly investing—investments that focus on companies with lesbian, gay, bisexual, transgender, and queer-inclusive policies—has attracted increased attention in recent years. Given the growing awareness of these issues, a number of different avenues are available for investors to support LGBTQ+ inclusive companies. 

Whether it is through investment funds or individual companies, here’s how investors can build a LGBTQ+ friendly portfolio.

Inclusive Policies on the Rise

LGBTQ+ inclusivity in the workplace has come a long way in the last two decades. Back in 2002, the Human Rights Campaign, an LGBTQ+ advocacy group, created the Corporate Equality Index to track LGBTQ+ inclusive workplace policies. Specifically, these policies are relevant to lesbian, gay, bisexual, transgender, and queer (LGBTQ+) employees.

When it was first launched, 13 companies achieved a 100% rating on LGBTQ+ equality. In 2021, this number reached 767. Globally, these companies—which include many Fortune 500 companies—employ 13 million people. At the same time, 71% of Fortune 500 companies have transgender-inclusive healthcare benefit policies. To put things in perspective, this number was 0% in 2002. The rise in company advocacy for transgender initiatives is one area that has seen some of the greatest progress over 19 years.

Of course, there is still progress to be made for LGBTQ+ protections. But as increased focus is being directed towards diverse workforces, the impact on employees, productivity, and investors is being understood at a closer level.

Building an LGBTQ+ Friendly Portfolio

There are a number of ways for investors to build LGBTQ+ inclusive portfolios. The Human Rights Campaign’s annual Corporate Equality Index (CEI), which tracks company LGBTQ+ policies, is a good place to start. Company scores are based on a scale of 100, and criteria look at nondiscrimination gender policies, spousal medical benefits, training and best practices, and corporate social responsibility, among others.

Other indexes also focus on LGTBTQ+ inclusive companies. The Credit Suisse LGBTQ Equality Index and the LGBTQ100 Index from LGBTQ Loyalty, a financial data company, are two examples that assess companies according to LGBTQ-friendly policies.

Meanwhile, funds that focus on social responsibility may provide other avenues for investors. Although not exclusively focused on LGTBQ+ friendly investing, according to Forbes, the following funds all consist of companies that support gender diversity:

• SPDR SSGA Gender Diversity Index ETF (SHE)
• Vanguard FTSE Social Index Fund (VFTAX)
• iShares MSCI KLD 400 Social ETF (DSI)
• Change Finance US Large Cap Fossil Fuel-Free ETF (CHGX)
• Vanguard ESG U.S. Stock ETF (ESGV)

How to Invest in LGBTQ+ Friendly Companies

For investors who are looking to own shares in LGBTQ+ friendly companies, the Human Rights Campaign CEI report includes a full list of these types of companies in the Fortune 500, along with mid and large-sized public companies. For instance, in the 2021 report, seven of the ten largest Fortune 500 companies achieved ratings of 100%, including:

It’s worth noting that investors can also do their own research by reviewing company websites, which may offer insight into their diversity and inclusion practices. These are often found on the careers or culture pages. In addition, reviewing Glassdoor.com ratings could pull back the curtain on company policies in action—or the absence of them—as employees see them.

Driving Forces

Why is interest growing in LGBTQ+ inclusive companies? Studies show that LGBTQ+ friendly policies have proved their economic worth—from employee retention to profitability. For instance, in a 2017 Deloitte survey, 80% of respondents said that inclusion plays an important role in how they choose an employer. Meanwhile, more than 70% of respondents said they would consider leaving an organization for one with more inclusive practices. 

When it came to profitability, one study from McKinsey found that the worst-performing companies on gender and cultural diversity lagged by 29% in their likelihood of achieving above-average earnings. In tandem with this, large stakeholders are integrating relevant issues on diversity into policy structure, both domestically and in international operations.

Startup Funding Trends

Today, the majority of startup funding is directed to companies that are run by white cisgender men. This investment funding enables companies to bring their product to market and meet the initial costs of running the business. Because most of this money is directed to companies run by white cisgender men, BIPOC, gay, and trans individuals face a barrier in receiving funding.

To answer this problem, New York-based venture capital firm Gaingels invests in LGBTQ+ inclusive companies. It also partners with firms such as Harlem Capital to support ethnic minority companies and startups and has seen funding grow from $5 million to $50 million in under two years, as of late 2020.

How Do LGBTQ+ Friendly Companies Perform?

According to research from Credit Suisse, companies with socially inclusive, LGBTQ+ friendly policies attract talent and have improved share performance. For instance, the LGBTQ-350 Index, established by Credit Suisse, includes companies with LGBTQ senior management, and/or companies that are voted by trusted surveys as LGBTQ+ inclusive.

In 2020, the LGBTQ-350 outperformed its benchmark, the MSCI All Country World Index, by 6.58%— returning 21.14% compared to 14.29%. Credit Suisse notes, however, that inclusive policies do not directly lead to outperformance, but highlight that LGBTQ+ policies and higher returns can occur simultaneously.

Stronger share returns were also seen by the LGBTQ100 Index. Developed by Los Angles-based LGBTQ Loyalty, the index consists of 100 large-cap companies with leading equality measures in 2020. The index saw gains of 31.52% compared to the S&P 500 Index returns of 29.01%. As of year-end 2020, the indexes’ top five holdings included Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), Marriott International (MAR), and Estée Lauder (EL).

Meanwhile, a 2019 McKinsey report suggests that companies that promote diversity and inclusion practices have higher profitability. The top-tier companies in gender diversity, for example, had a 25% higher likelihood in superior profitability than the lowest-tier companies. Not only that, companies that were rated in the top-tier for racial and cultural diversity saw 35% stronger returns than their lowest-ranked peers.

The Bottom Line

While there are just a handful of LGBTQ+ exclusive funds available for investors, some of the existing options have returned competitive results. Investors may refer to the Human Rights Campaign Corporate Equality Index, which is released each year, to research LGBTQ+ inclusive companies, along with assessing the company website and employee reviews on Glassdoor.com.

On a company level, interest in LGBTQ+ friendly policies has increased in recent years. One of the many strengths of LGBTQ+ friendly companies, according to research, is the competitive advantage seen in talent, acquisition, and financial gains.

Thanks to the multiple forces that continue to elevate gender diversity and inclusion, building an LGBTQ+ friendly portfolio is becoming more accessible to investors. This—coupled with the rise in socially responsible investing (SRI), which may screen companies on inclusive policies—could expand the number of investment options for investors seeking such portfolios.

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