Gender equality for LGBTQ+ employees and their families continues to expand across business and society, and is currently at an all-time high.
According to the Human Rights Campaign’s Corporate Equality Index 2020, 93% of the Fortune 500 have incorporated sexual orientation in their non-discrimation policies and 91% of the Fortune 500 have gender identity protections outlined in their non-discrimination policies.
More than simply positive PR, inclusive workplaces are the hallmark of companies that seek superior business performance. Indeed, organizations with forward-thinking LGBTQ+ policies tend to perform more strongly than those that do not.
Analysts agree that the correlation exists because of a wider trend towards environmental, social and governance (ESG) investing. This strategy has managers selecting the assets of companies that demonstrate not only strong returns but also positive social impacts. An example of ESG investing would be investing in battery or solar companies and divesting or shorting fossil fuel companies. The idea is socially-conscious returns.
Investing in companies with clear, delineated LGBTQ+ policies would fall under the S of the ESG, of course
According to Pensions & Investments magazine, ESG-data driven investments hit $40.5 trillion in 2020. This is almost double the amount in 2016 and more than triple the amount since 2012. Clearly, interest in ESG has grown and will most likely continue to do so in the future.
In October 2019, LGBTQ Loyalty Holdings launched the LGBTQ100 Index, made up of 100 companies that support LGBTQ+ individuals. The index, no surprise, skews heavily to the technology sector, with 21 technology companies. The sector with the smallest number of constituents is consumer services, with only 3 companies.
As of November 2020, the Index realized an annualized one-year return of 20.73%, as opposed to 15.30% of the S&P 500.
While there might exist a correlation between performance and LGBTQ-friendly policies, there is not necessarily causality. Just having such policies in place does not necessarily lead to strong financial performance.
Several analysts have studied the relationship between investment performance and company policies, and generally agree that when a company’s employees feel valued, the company tends to perform better.
Further, when the company has an ability to attract and retain top-tier talent, without discriminating against such workers for arbitrary reasons, companies typically become stronger.
It’s no surprise that the largest sector of companies in the LGBTQIndex are in technology: the industry places a premium on innovation and intellectual property. In these work environments, companies need to source the best people they can find and cannot let discrimation stand in the way of developing cutting-edge products and services.
Indeed, higher employee satisfaction, decreased turnover, and stronger employee engagement and commitment to the organization all contribute to an improvement in the company’s overall performance and, ultimately, its profitability.
There is also macro-level evidence of the correlation between LGBTQ+ inclusion and economic development.
According to the journal World Development, researchers discovered that an additional point on an 8-point scale of legal rights for LGB persons is associated with an increase in real GDP per capita of approximately $2,000.
The report’s authors noted that previous studies provide substantial evidence that LGBT people are limited in their human rights in ways that also create economic harms, such as lost labor time, lost productivity, underinvestment in human capital, and the inefficient allocation of human resources.
“Our quantitative results suggest that LGBT inclusion and economic development are mutually reinforcing,” notes the study’s authors.
If the introduction of LGBTQ+ rights can be shown to contribute to a country’s economic development, then it follows that the same can affect a private company
Besides the connection to ESG investing philosophies, another reason why companies with LGBTQ+ policies tend to perform better can be associated with companies that simply have general diversity initiatives in place.
According to a study by management consultant McKinsey, diversity and inclusion strategies pay off for the companies that decide to develop and administer them. The firm’s 2019 report found that:
As LGBTQ+ can be said to be a part of any diversity initiative, clearly companies that invest in such policies appear to have a higher likelihood of outperforming their less-inclusive peers.
To conclude, it is no surprise why companies with forward-thinking human capital policies tend to perform more strongly than those that do not. As managers incorporate more socially-conscious investing principles and seek positions in companies that embrace more open and diverse human capital policies, LGBTQ+ investing will continue to be profitable.
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