Investors missing potential $23trn LGBT+ market

Some 85% of investment firms have not yet considered an LGBT+ lens internally, and data in the area is lacking

Some 85% of investment firms have not yet considered an LGBT+ lens internally, a new study has found.

A New Frontier: LGBT+  Lens Investing for the 2020s is a compilation of two surveys taken last year, and interviews with 25 different global public and private investment and wealth management organisations.

LGBT+ lens is the practice of investing for financial return while also considering the benefits to those who identify as LGBT+, the report said. These benefits include improved economic opportunities, social inclusion and wellbeing and such benefits already make it a potentially very worthwhile activity to pursue. LGBT+ lens investing can also be understood to promote and drive effective inclusion more widely across organisations.

“When it comes to LGBT+ diversity and inclusion, there is evidence to show that companies who embrace positive policies and practices improve their corporate performance,” Hephzi Pemberton (pictured), chief executive officer at Equality Group (one of the collaborators on the report) wrote in ESG Clarity last summer.

Credit Suisse research demonstrated companies with openly LGBT management, companies voted in a recent survey as a leading LGBT company, or companies whose employees are openly members of local LGBT business networks, outperformed global stocks by 3% over six years. Amundi Asset Management published a report to show the outperformance of an investment universe based on the relative contribution of companies to social inequalities, outperformed its index by 119 basis points over the period February-April 2020.

Similarly, with an estimated $23trn household wealth, a 1% share of LGBT+ investable assets could equate to $50bn in the US, $7bn in the UK and $2.5bn in Australia, the New Frontier report said.

“Adopting an LGBT+ lens will be one of the ways that professional investors can begin to understand the inherent risks of social exclusion and discrimination, as well as the huge opportunities that come with making investment choices that influence LGBT+ equality,” Pemberton commented in the report.

Lack of data

Of the 15% that have considered an LGBT+ lens within their investing process and active ownership framework, the report said the majority have attempted to embed this as part of a broader diversity and inclusion lens, but most reported difficulty in sourcing the necessary data and metrics, as well as identifying a suitable and comprehensive framework.

Only 12% of investors have developed a framework for gathering LGBT+ lens specific data from their portfolio companies, with more than 75% saying there was a lack of transparent and robust data and indicators to apply an LGBT+ lens.

‘Data availability is patchy: globally, only relatively few countries have an LGBT+ D&I Index (e.g. Stonewall’s Workplace Equality Index for the UK) – and even where such indices exist, the coverage of quoted stocks is limited,’ the report said.

Respondents to the surveys highlighted issues with the objectives behind evaluation criteria, finding independent and unbiased sources, developing data in house, getting down to the finer details, and best practice metrics.

To combat lack of awareness and data, the report recommends investment companies up their own diversity and inclusion strategies, with a targeted focus on LGBT+ inclusion; incorporate methodology and tools into the fabric of the company’s investment portfolio management; and use their influence as shareholders, asset owners, investment consultants and data providers.

LGBT Capital, another of the report’s collaborators, provided a case study detailing the complexity of evaluating LGBT+ screening output:

Three different drinks companies all have LGBT+ targeted products and each market themselves as active supporters of the community, with expensive marketing and advertising around high-profile Pride events which they claim to be ‘sponsoring’. How can investment managers distinguish which company to invest in?

Company A’s sponsorship consists of selling products at cost+ pricing to bars and restaurants around the Pride event, thereby supporting these establishments but not contributing to the Pride budget directly. 

Company B sells its product at cost+ pricing to the Pride Organisers’ budget, for them to then sell on at a profit to bars and restaurants.

Company C donates money to the Pride budget directly.

Does Company A display significant LGBT+ ‘friendliness’ to merit credit in the screening process, or does their approach actually constitute a potential LGBT+ Lens investment risk, in that a possible backlash could come from the community if this practice should be seen as predatory and dishonest in its claim to be actively supporting the community’?   

To have credibility in a desire to project itself as an ESG aware provider of investment products and/or services, it is of critical importance that the drinks companies display values and practices as outlined LGBT Capital’s Accreditation, in the terms of best practice within each of the nine categories. It is important to view such a screening as an ongoing process, e.g. with annual reviews, to ensure adequate performance against the then current status of ‘best practice’, within the sector peer group in particular.

The new research is spearheaded by diversity organisation LGBT Great in partnership with Equality Group, LGBT Capital and the Bisi Alimi Foundation, and has been sponsored by Northern Trust Asset Management and St. James’s Place Wealth Management.

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Natasha Turner

Natasha is global deputy editor at ESG Clarity, part of the Bonhill Group, and has been a financial journalist for six years. She has been shortlisted for Story of the Year and Investment Journalist of...