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May 19, 2021

LGBT+ lens investing: progress to deliver huge returns

By Hannah Wright

Marking LGBT+ History Month in February, Northern Trust Asset Management and St. James’ Place (SJP ) Wealth Management facilitated the release of the latest research on the practical application of LGBT+ issues into the investment process. Hannah Wright writes

Outlined in a report released 25 February 2021, LGBT Great – in partnership with Equality Group and the Bisi Alimi Foundation – highlighted the opportunities for firms in appealing to a $23trn market through effective inclusion.Tapping into this market, the report argues, will demand the widespread adoption of an LGBT+ lens. A crucial component of social sustainability, LGBT + lens investing is the practice of investing for financial return, whilst also considering the benefits to those who identify as LGBT+.

2020 has seen an explosion of interest in environmental, social and governance themes in investing. Indeed, the understanding and inclusion of such factors is deemed “essential” by Matt Cameron, global managing director of LGBT Great.

Hephzi Pemberton , CEO of Equality Group, agrees: “The four global crises of a pandemic, economic recession, climate change and racial inequalities, are forcing us all to do things differently.”

In particular, “the ‘S factor’ has led to recent discussion around tangible actions that corporations can take to evidence diversity, equality and inclusion” says Cameron.

Yet, despite such themes dominating the investment discourse, Cameron speculates that the social component has fallen behind: “Much more needs to be done and the S now needs to be much deeper.”

Highlighting the significance of LGBT+ lens investing, Pemberton continues: “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.

“For businesses, being at the forefront when it comes to LGBT+ friendly policies and environments, positions companies and their shareholders to target both increased internal performance improvements and overall bottom line returns.”

Now is optimal timing for the C-suite to explore this new and significant frontier. And significant it is. According to the report, LGBT+ lens investing has potential to appeal to a $23trn market, with merely a 1% share of LGBT+ investable assets equating to $50bn in the US, $7bn in the UK and $2.5bn in Australia.

Yet despite the opportunity, professional investors knowledge of LGBT+ issues, and the commercial opportunity, are falling short.

Taking lessons from gender progress

According to the report, an LGBT+ lens investment approach is a natural extension of the body of research and data surrounding gender-based diversity and inclusion gender.Under a gender lens, the industry has made ample improvements. Over half of all firms surveyed adopt a gender lens, with a further 16% indicating that a gender lens was under review by their firm. With firms under obligation to disclose gender pay gaps, there has been a focused commitment to get more women into senior positions to feed the pipeline to the top.

The Criterion Institute argues that one of the principal drivers behind gender lens investing was ample data showing that companies with women on boards and as employees outperform those without.

Research by numerous organisations, such as Open for Business, have laid out the case for improved inclusion and diversity in the workplaces. It is indisputable – inclusion brings greater levels of innovation, fosters creativity, and improves financial performance.

However, highlighting the LGBT+ void, the report reveals the shortcomings of the industry, with 85% of firms failing to consider an LGBT+ lens internally at the firm. A further 40% believed that the business case for an LGBT+ lens had been insufficiently communicated.

Bisi Alimi, founder of the Bisi Alimi Foundation believes there is a “compelling business case” that needs to be rearticulated and appreciated. Subsequently, the market is seeking more thought leadership and values-drive management from the investment sector.

However, as Alimi points out: “No major investment manager has yet incorporated an LGBT+ lens to support the case for developing the LGBT+ market.”

In the absence of any first movers, the space for an advisory firm, such as SJP, to set the agenda and expectations for LGBT+ lens investing is wide open and waiting to be filled.

Iain Rayner, CEO of SJP Wealth Management, believes it is the industry’s responsibility to help advance the equality agenda of the LGBT+ community.

Commenting on the findings of the report, he says: “This research creates an opportunity to engage with senior company decision-makers and to encourage the development of LGBT+ inclusive equality strategies”.

Indeed, SJP are already leading the way. Rayner continues: “We have taken action internally by establishing an LGBT+ network, implementing a transgender policy and celebrating key LGBT+ diversity dates throughout the calendar year.

“We are already seeing the benefit of inclusion, but our responsibilities don’t stop there. They also extend externally through our fund managers to the businesses we invest our client’s money in.”

Hurdles to progress

Whilst diversity and inclusion training are now offered at around 65% of firms, “there is much to work on” Rayner adds.Turning to the report’s role in reaching this collective aim, Rayner says: “This research brings home the value of recognising everyone for who they are and the dangers of failing to recognise the benefits that embracing diversity can bring.”

Therein lies the issues – countless institutions do not recognise the benefits of embracing diversity. Thus, a key challenge the report works to tackle is that of awareness.

According to the report, no single firm in the investment management arena has ever been represented in the top 100 Stonewall UK Workplace Equality Index. Conversely, investment banking firms and businesses across commercial banking continue to be represented each year. Similarly, more than two thirds of investors believe there is no visible advocacy from an LGBT+ lens from senior leadership at their firm.

In order to overcome this discrepancy, firms must review their internal approach to culture and inclusion using LGBT+ lens methodologies and tools. Whilst 80% of respondents are of the view that quality metrics to measure diversity and social sustainability would be of interest to clients, only 12% of investors have developed a framework for gathering LGBT+ specific data from portfolio companies.

Unfortunately, the paucity of quality data and metrics is further constraining investors in advancing their awareness and understanding. Acknowledged by survey respondents, 75% believe there is a lack of transparent and robust data and indicators to apply and LGBT+ lens. Amongst the 15% that attempted to implement an LGBT+ lens, each firm had found the lack of metrics and framework to be a significant obstacle.

Confronting all these challenges, LGBT Great released a digital benchmarking tool – Investment Industry Benchmark Tracker (iiBT) – which provides a bespoke measure of a firm’s LGBT+ inclusion maturity. The iiBT enables firms to generate data to track progress; develop a deeper understanding of specific industry progress; identify key areas for development; and demonstrate return on investment and commitment to diversity.

Beyond the iiBT, support and advocacy from executive leadership is key to improving the discrepancy, alongside active stewardship with data providers.

Acknowledging the remaining hurdles, Sir Elton John and David Furnish commented on the report findings: “We are delighted to see the investment industry stepping up its leadership for LGBT+ equality around the world. Our community still faces many challenges and we must work together to increase support, acceptance, and progress.

“This report highlights how the industry can influence the LGBT+ diversity and equality agenda within both corporations and broader society. We welcome the work of LGBT Great to bring this agenda to the spotlight”.

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