This article is sponsored by Credit Suisse.
It’s been a year of milestones for the lesbian, gay, bisexual, and transgender (LGBT) community. Marriage equality is now legal in 19 states; in May Michael Sam became the first openly gay player drafted to the NFL; and in July, President Obama issued an executive order banning discrimination on the basis of sexual orientation and gender identity for federal workers.
Corporations have played a significant role in turning the tide for LGBT issues. Sponsorship of pride parades is on the rise, with corporate logos and slogans displayed alongside rainbows flags and banners. According to the Human Rights Campaign (HRC), 91 percent of Fortune 500 companies now prohibit discrimination based on sexual orientation, and 62 percent provide health insurance benefits to employees’ domestic partners.
It’s easy to see why businesses are promoting pro-LGBT policies: The LGBT community represents an estimated $800 billion in buying power annually. That’s not to mention the HR perspective. Studies have shown that LGBT-supportive practices have a positive impact on LGBT employee satisfaction, workplace relationships, and job commitment, and in turn, increased productivity and creativity. In short, the more comfortable LGBT employees feel at their workplace, the happier they are; the happier they are, the better they work.
But what about from a company stock performance perspective? Pro-LGBT policies, like giving partners equal benefits or including transgender procedures in health insurance, cost money for an employer, and some corporations have argued that such practices are simply too costly for them to take on. In part to test this assumption, Credit Suisse created the Credit Suisse LGBT Equality Index, a quantitative way to show whether the money spent on pro-LGBT policies negatively impacted an employer’s stock price. The index was launched in October 2013, and with it, Credit Suisse also created the LGBT Equality Portfolio, a portfolio of stock screened for their progressive LGBT practices.
The Credit Suisse LGBT Equality Index was based on the Corporate Equality Index (CEI), a national tool created by the HRC in 2002 to evaluate corporate policies towards LGBT employees. The CEI gave consumers a way of determining which companies to support with their dollars based on how LGBT friendly they are, says Nicole Douillet, one of the creators of the LGBT Equality Index and co-chair of Open Network, Credit Suisse’s professional network for LGBT employees.
“If you wanted to buy household goods from companies that support LGBT policies, you could go to the HRC’s website and say, I need to buy laundry detergent. These are the different producers of detergent I can choose from: Which scores highest on the index? Great I’ll buy that one,” she explained. “A lot of people in the community used the CEI to help them allocate consumer dollars.The LGBT community is known for being pretty loyal, so companies have gone out of their way to be supportive, and the community has reciprocated.”
The CEI operates on a 100-point scale, and companies win points based on how much they fulfill certain criteria, such as 15 points for prohibiting discrimination based on sexual orientation, and 10 points for transgender-inclusive health coverage. There’s also a possibility for a 25-point deduction for any anti-LGBT activity in recent records, such as revoking inclusive LGBT policies or opposing proposals aimed at more inclusive workplace practices. In the most recent edition, 304 business scored 100 points on the index, compared to only 13 in 2002.
To create their own index of LGBT friendly publicly traded companies, Credit Suisse took the 1,500 companies listed in Standard and Poor’s Composite 1500, one of the best known equity indices, and applied a minimum CEI score of 80 to qualify, resulting in 225 companies across all ten S&P industry sectors. After the index was launched, they made a happy discovery: Having pro-LGBT policies does not negatively affect stock performance. The CS LGBT Equality Index has performed inline with the S&P 500 index since its inception in 2002.
“What our research shows is that no penalty exists for the stock performance of companies who promote LGBT friendly policies,” said Eric Berger, a Credit Suisse relationship manager who runs the Credit Suisse Equality Portfolio. “If you invest in a company that has a pro-LGBT policy, not only are you taking a proactive stance in terms of your view on equal rights, but you could ultimately influence corporate behavior.”
Though the Credit Suisse Equality Portfolio is still in its early days, it features such heavyweight companies like Microsoft, Qualcomm, and General Electric. And more importantly, Berger hopes it inspires more socially conscious investing in the LGBT community by helping people see that this kind of investment can work.
“I think it created constructive buzz around the concept of socially responsible or social impact investing in the LGBT space,” he said. “We were surprised by how easily different types of people and institutions embraced the concept. The challenge is that people are performance-oriented, so there have been a lot of questions and scrutiny as to how exactly We expect this portfolio to perform, but for the most part, people get it and they think it’s a cool idea. It’s caused people to discuss the efficacy of investing in companies that have pro-LGBT policies.”