The same opportunity is on offer with an LGBT+ investment lens. This new frontier requires brave and bold leadership and will belong to those who choose to embrace it.
“Fully understanding and integrating environmental, social and governance (ESG) factors into investment decision-making is essential in this new world. The ‘S factor’ has led to recent discussion around tangible actions that corporations can take to evidence diversity, equality and inclusion. Therefore, as an industry, we are willing to make some progress, but much more needs to be done, and our ‘S’ now needs to be much more profound. The LGBT+ community is seeking more from professional investors, and now is the optimal timing for the C-suite to explore this exciting new frontier.”
What is LGBT+ lens investing?
An LGBT+ lens investment approach is a natural extension of the body of research and supporting data known collectively as ‘the business case for LGBT+ diversity & inclusion’. The business case, and its related investment thesis, states that companies with effective LGBT+ inclusion have been proven to outperform their peers over time, with both bottom line and share-price multiple associated benefits.
These benefits include improved financial return, economic empowerment, social inclusion and wellbeing. Viewed more widely, LGBT+ lens investing can also be understood to promote and drive effective organisational diversity and inclusion in target companies by encouraging more equal cultures.
Why should professional investors adopt this lens?
Our industry has typically focussed on the ‘E’ and ‘G’ elements of environmental, social and governance (ESG) factors, and less on the ‘S’. Yet the events of 2020, the global pandemic and calls for racial justice and social equity, have told us that social sustainability matters, and that investors can potentially better serve their clients and members, by providing equitable attention to the ‘S’.
The ‘S’ is a powerful driver of innovation and financial outperformance. Several studies have highlighted the commercial opportunity for adopting an LGBT+ lens specifically. The Credit Suisse marketcap-weighted basket of 350 LGBT+ inclusive companies outperformed against the MSCI Inc. ACWI Global Equity Index by 3.78% per annum1. Estimated global LGBT+ gross domestic product is $3.9 trillion US dollars and household wealth of the community stands at $23 trillion2. The numbers speak clearly for themselves.
What can our industry do?
1. Leverage internal diversity & inclusion with purpose.
Progress towards an LGBT+ lens must start with reviewing the internal policy to culture and inclusion overall. The plan should be aligned to the overall commercial business case and alongside other diversity dimensions in equal measure. Executive sponsors must lead and influence this topic to ensure that diversity and inclusion are positioned as a competitive business enhancer instead of ‘just’ HR policy. Role modelling of good practices will encourage greater confidence and stewardship.
2. Encourage professional investors to adopt LGBT+ methodologies and tools.
The approach to applying an LGBT+ investment lens can be multi-faceted but must always respect potential regulatory constraints on the gathering and use of data in different jurisdictions. An LGBT+ review and scoring tool, like LGBT Great’s iiBT tool, can be deployed to create a universe of investible companies and assets onto which a portfolio manager can overlay their in-house preferred ‘traditional’ investment approach (e.g. growth or value investing) to construct an optimised portfolio. Developing an effective active ownership framework will provide greater structure and clarity.
3. Equip executive leaders with the information and confidence they need to influence.
The lack of data remains a key barrier to LGBT+ lens investing. Improving the access to reliable data can be achieved by a ‘do it yourself’ approach whereby professional investors develop inhouse capability. Collaborating with data providers and engaging with target companies together will provide a joined up approach. To find out more about LGBT+ lens investing, you can read our full report here: lgbtgreat.com/ ANewFrontierReport.
This article was featured in Pensions Aspects magazine September edition.
Last update: 15 September 2021