How to invest through an LGBT+ lens

We highlight the funds in interactive investor’s ethical long list that take LGBT+ issues seriously.

Many companies have used Pride month as an opportunity to publicise their support for the LGBT+ community, adding rainbows to their corporate logos, branding and apps. While these initiatives are likely to have kept marketing teams busy, investors must consider whether a company’s actions and policies tally with these public displays.

“It bothers me when I see rainbows appearing on certain company logos. For some, you look at them and think – really? And you do have to question it,” says Julia Dreblow, founder of SRI Services, a sustainable and responsible investment consultancy that helps interactive investor to compile its ethical investments long list and ACE 40 rated ethical investments list.

“If it is a statement of intent and the companies want to do the right thing, then that is a good thing. But if it is to greenwash, to deliberately and intentionally mislead people, then that could be hugely damaging, and they should be rightly found out and punished for it by their investors and the stock market,” she adds.

Asset management companies have also put marketing spend behind Pride campaigns, which brings another question to the fore: are their fund managers doing enough within their portfolios to encourage positive change for the LGBT+ community?

Breaking down barriers

Whether you are investing in funds, investment trusts or exchange-traded funds (ETFs), there are a number of LGBT+ issues to bear in mind. First, and perhaps most importantly, how do the companies held in the portfolio treat their LGBT+ employees? Discrimination remains a real problem, with 35% of workers from this community admitting to hiding their sexuality at work for fear of discrimination in the UK, according to research produced by consultancy Equality Group. YouGov has also identified a pay gap for the LGBT+ community of £6,700 per year, almost double the gap between the binary genders.

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If you want to get a better idea of the companies that are working hard to achieve acceptance for LGBT+ people in the UK, equality charity Stonewall highlights its top 100 employers each year. In 2020, the list included the likes of Vodafone (LSE:VOD), Sky, Barclays (LSE:BARC), Aviva (LSE:AV.) and even the Financial Conduct Authority, the regulator.

Beyond how staff are treated, there’s also a risk that companies ignore or even alienate the LGBT+ consumer.

“Taking an SRI or ethical approach to LGBT+ is about aligning a person’s investments with their own personal values,’ explains John Ditchfield, founder of Impact Lens, which provides research on ethical and sustainable funds.

He adds: “This could include screening out firms or countries which have a poor track record on LGBT rights or investing in businesses whose main activities tackle LGBT issues.”

Research has found time and time again that companies with more diverse and inclusive teams are more innovative and agile than their peers, resulting in better business outcomes – a view that is shared by Harriet Parker, who forms part of Liontrust’s sustainable investment team.

“We believe companies that are more diverse are better able to prosper over the long term, so we are engaging to encourage greater diversity,” she says. “We see LGBTQ+ inclusion as being most relevant within our investment process to how companies manage and engage with their staff, in particular culture and the ability to attract a diverse workforce to better reflect their customers.”

With this in mind, she highlights online payments specialist PayPal (NASDAQ:PYPL) as a company that is leading the way. “PayPal demonstrates best practice in inclusivity, with a very diverse workforce, no gender pay gap, and it is active in celebrating LGBTQ+, as well as educating staff and communities.”

Words versus actions

As funds that invest in line with environmental, social and governance (ESG) criteria continue to grow in popularity, commentators are concerned that the ‘S’ risks getting left behind – and a lack of awareness of LGBT+ issues among professional investors could play a role in this. If you are looking to invest in an ESG fund, it is worth finding out if LGBT+ considerations feature in their investment policy. Likewise, does the fund manager have a track record of engaging with companies on these issues?

Ditchfield points to the potential challenges that can surface if asset managers only pay lip service to these considerations. “Rainbow-washing is an issue for asset managers if they have made clear efforts to address LGBTQ+ diversity and inclusion, but are invested in companies or regions with historically poor records with the LGBTQ+ community,” he says.

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‘Rainbow-washing’ is where a company promotes itself as an ally of the LGBT+ community to gain favour with consumers, but in reality it does not represent a priority for the business. In some cases, a closer look reveals that the company is supportive of an anti-LGBT+ political agenda.

He adds: “Furthermore, rainbow-washing can arise where the underlying holdings of a fund may have an equal and diverse in-house LGBT environment, but then also fund political lobbying which may be counter to LGBTQ+ rights issues.”

Dreblow believes there are two types of greenwashing (or pinkwashing as some say). The first is where the company deliberately intends to mislead people and benefit financially. The second kind happens when initiatives are borne out of good intentions, but the business simply does not know enough about what they are doing and can end up getting things wrong.

“We see this with so many investment funds today. I talk to investment managers all the time, who run funds that claim to be sustainable or ESG but when you scratch under the surface, they have no real knowledge of the sustainability agenda.

“Some of them are very new to it. They need training and support. They need senior level management to get to grips with these things. That means incentivising senior management to have high standards to make sure they ‘walk the walk’, which probably comes down to shareholder activism or a link to remuneration packages,” she explains.

The ESG funds leading the way

The good news is there are a number of ESG funds that appear to be taking LGBT+ issues seriously. According to Impact Lens’ research, teams from WHEB, Liontrust, Montanaro Asset Management and Stewart Investors/First Sentier all reported that LGBT+ issues fall within their diversity engagements with companies. This involves an ongoing dialogue with companies over their diversity policies, as well as encouragement to submit information to the Workplace Disclosure Initiative, a survey created by charity Share Action which aims to improve transparency on workplace practices.

“Although none of them reported that LGBT+ issues exclusively led to a buy or sell decision, a number did report voting against management on proposed diversity policies, or divested for concerns over diversity as a whole,” says Ditchfield.

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He said the team behind the FP WHEB Sustainability fund, in particular, was able to demonstrate how the portfolio aligns with potential investor concerns on LGBT+, with around 20% invested in companies that are rated among the best places to work for LGBTQ equality. They include two US businesses, software provider Autodesk (NASDAQ:ADSK) and water technology company Xylem (NYSE:XYL).

Meanwhile, Dreblow said a number of funds stood out on SRI Services’ Fund EcoMarket tool, as they have diversity policies in place at both the portfolio level and across the asset management business as a whole.

They include the BMO Responsible UK Income and BMO Responsible UK Equity funds, Liontrust’s Sustainable Future range, and Stewart Investors Asia Pacific Sustainability fund, which all appear on interactive investor’s 140-strong list of ethical investments options.