Environmental, social, and governance (ESG) investors are placing a growing focus on how corporations address diversity and inclusion. As part of these efforts, LGBTQI lens investing seeks to spotlight issues of sexual orientation and gender identity such as LGBTQI rights, equality, and representation in leadership.
While a recent landmark US Supreme Court ruling protects LGBTQI workers from discrimination at workplaces with 15 or more employees, many areas still need attention, from corporate healthcare and family leave benefits to workplace culture and safety.
The Case for LGBTQI Lens Investing
A 2020 US workplace report by McKinsey found that LGBTQI workers (and LGBTQI women in particular) continue to experience unwelcoming or unsafe work environments as well as sexual harassment. In addition, these individuals are underrepresented in corporate management and leadership despite increasing support from corporate America for LGBTQI rights.
This may be a cue that current diversity and inclusion efforts do not encompass LGBTQI rights strongly enough. Research indicates that LGBTQI equality in the workplace tends to result in better employee recruitment and stronger consumer perception for companies. A lack of safety and inclusiveness places high stress on employees, potentially putting operations at risk. Companies may also face market risk for products and services if they do not keep pace with evolving cultural mores.
Investing with an LGBTQI lens centers on efforts to complete the corporate picture of diversity and inclusion and corresponding performance benefits, as well as to promote companies with the strongest positive impact on employees, customers, and supply chains. At a broader level, this investment philosophy is also rooted in social justice and an awareness of the economic losses incurred from inequality.
Where Are the Investment Opportunities?
As the criteria for capturing the best corporate performers on LGBTQI rights and intentional equity become more defined, this nascent investment thesis is positioned to develop even further. In the private market, a growing presence of angel and venture investors is providing an edge to LGBTQI founders. For example:
- Gaingels, an angel network supporting LGBTQI leadership, grew from $5 million in 2018 to $100 million in 2020.
- Founded in 2015, Backstage Capital has invested in over 150 companies with LGBTQI and other underrepresented founders.
- Loud Capital recently launched a $10 million venture fund to invest in LGBTQI founders and firms providing services to the community.
The recently launched StartOut Pride Economic Impact Index provides data on equal access to capital, tracking US metrics such as funding, jobs, exits, and patents by geography. For instance, LGBTQI founders are absent in most cities ranking best on high-growth ventures.
Opportunities are also available on the public equities side. Financial services firm LGBTQ Loyalty joined a small suite of diversity and inclusion indexes in 2019 when it launched the LGBTQ100 ESG Index, which tracks the top 100 public companies advancing LGBTQI rights and equity. Loyalty recently announced plans to launch an exchange-traded fund (ETF) benchmarked to this index in early 2021, ushering in a new segment of the diversity and inclusion asset class.
While corporate research has typically employed a more normative definition of gender, as this segment unfolds, researchers are also calling for an expanded definition for gender lens investment.