How to Invest in LGBTQ+-Friendly Companies

LGBTQ+-friendly investing involves investments that focus on companies with lesbian, gay, bisexual, transgender, and queer-inclusive policies. This type of investment strategy 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 an LGBTQ+-friendly portfolio.

Inclusive Policies on the Rise

LGBTQ+ inclusivity in the workplace has come a long way since the millennium. The Human Rights Campaign Foundation, which is an LGBTQ+ advocacy group, created the Corporate Equality Index in 2002 to track LGBTQ+ inclusive workplace policies. These policies are specifically 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 2022, this number reached 842. These companies, which include many Fortune 500 companies, employ more than 39 million people globally. And 67% 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 20 years.

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

How to Build 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, 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, best practices, and corporate social responsibility (CSR), among other factors.

Other indexes also focus on LGBTQ+ inclusive companies. The Credit Suisse LGBT Equality Index, launched in 2013, and the LGBTQ100 Index from LGBTQ Loyalty, a financial data company, are two examples that assess companies according to LGBTQ+-friendly policies.

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

• SPDR SSGA Gender Diversity Index ETF (SHE)
• Vanguard FTSE Social Index Fund Admiral (VFTAX)
• iShares MSCI KLD 400 Social ETF (DSI)
• AXS Change Finance ESG 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's CEI report includes a full list of these types of companies in the Fortune 500, along with mid- and large-size public companies. For instance, in the 2022 report, 15 of the top 20 Fortune-ranked companies achieved ratings of 100%, including:

• Walmart (WMT)
• Amazon (AMZN)
• Apple (AAPL)
• CVS Health Corp. (CVS)
  
• UnitedHealth Group (UNH)

It’s worth noting that investors can (and should) 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. You can also review ratings on Glassdoor.com. Doing so could pull back the curtain on company policies in action (or the absence of them) as employees see them.

What Are the Benefits of Investing in LGBTQ+-Friendly 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.  Additionally, a study conducted by PEW in 2023 showed that only 32% of respondents said diversity and inclusion (DEI) programs were extremely or very important in the workplace.

In a separate study, there was a 56% jump in performance when employees felt as though they belonged. Meanwhile, turnover risk was cut in half and sick days dropped by 75%.

When it comes to profitability, one study from McKinsey found that the worst-performing companies in terms of 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 in LGBTQ+ Companies

The majority of startup funding is directed to companies that are run by White cisgender men. This investment funding enables companies to bring their products to market and meet the initial costs of running the business. That means Black, Indigenous, & people of color (BIPOC), along with gay/trans individuals, end up at a disadvantage because they face barriers when it comes to receiving funding because most of this money is directed to White males.

To address 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. Gaingels oversees a portfolio of $750 million in investments as of January 2022.

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 Equality Index established by Credit Suisse includes about 500 companies with LGBTQ senior management and/or companies that are voted by trusted surveys as LGBTQ+ inclusive.

For example, the LGBTQ Equality Index outperformed its benchmark, the MSCI All Country World Index, by 238 basis points on average annually between 2010 and 2022.

At times, 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's returns of 29.01%. However, in 2021 (the most recent data available), the index saw gains of 25.79% compared to the S&P 500 Index's return of 26.89%. As of October 2022, the indexes’ top five holdings were Tesla (TSLA), Apple, Amazon, ServiceNow (NOW), and Microsoft (MSFT).

Meanwhile, a 2019 McKinsey report suggests that companies that promote diversity and inclusion practices are highly profitable. The top-tier companies in gender diversity, for example, had a 25% higher likelihood of superior profitability than the lowest-tier companies. Not only that, the companies that were rated in the top tier for racial and cultural diversity saw 36% stronger returns than their lowest-ranked peers.

The Bottom Line

Although 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 Foundation's Corporate Equality Index to research LGBTQ+ inclusive companies, and also assess company websites 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.