Corporate ‘Wokeness’ Pays Off, and the New LGBTQ + ESG100 ETF Proves It

If money really does talk, it would be laughing out loud right now. Republican legislators, their allies, and even a few Democrats have begun whining about “woke” corporations in recent months, but the so-called corporate wokeness on challenges such as ensuring LGBTQ rights has already been institutionalized. The numbers show that investors benefit when business leaders take verifiable steps to support diversity, civil rights, and other issues associated with what their detractors often brand as “liberal” voices.

In the latest development, a new theme-centered exchange-traded fund (ETF) called LGBTQ + ESG100 is providing investors with a solid basis for backing corporate support of equal rights, civil rights and human rights.

Like it or not, “wokeness” is paying dividends

Advocates for ESG (environmental, social and governance) funds have been building the case for investing in companies that integrate such goals into their business models. Skeptics have scoffed, but the bottom-line evidence in support of the ESG-centered model has been growing.

The pace of ESG investing picked up considerably last year as the one-two punch of climate change and the COVID-19 crisis underscored the importance of resiliency. The global economy took a big hit when the pandemic took hold, but ESG funds in the U.S. held more of their value.

In an extraordinary February 2021 annual letter to investors, BlackRock Chairman and CEO Larry Fink took note of the “tectonic shift” toward ESG investing. He forecast that the ESG trend will continue to accelerate rapidly, and he emphasized the importance of focusing on non-traditional risks in an era of great change.

“It is clear that being connected to stakeholders – establishing trust with them and acting with purpose – enables a company to understand and respond to the changes happening in the world,” he wrote. “Companies ignore stakeholders at their peril – companies that do not earn this trust will find it harder and harder to attract customers and talent, especially as young people increasingly expect companies to reflect their values.”

 

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Earlier this year, S&P Global analyzed 29 ESG funds with more than $250 million in assets under management. They found strong support for Fink’s position in the performance of corporations with strategies focused on ESG.

“We found that from March 5, 2020 — the month that the World Health Organization officially declared COVID-19 a pandemic — to March 5, 2021, 19 of those funds performed better than the S&P 500. Those outperformers rose between 27.3 percent and 55 percent over that period. In comparison, the S&P 500 increased 27.1 percent,” S&P Global reported, adding that “ESG fund managers have said their focus on nontraditional risks led to portfolios of companies that so far have been resilient during the COVID-19 downturn.”

The bottom-line benefits of focusing investor dollars on LGBTQ rights

The EFT (exchange traded funds) platform provides the structure for ESG-focused funds to attract investors, and that is where the new LGBTQ + ESG100 fund comes in.

The new fund launched last week through Loyalty Preference Index, Inc., a wholly owned subsidiary of the firm LGBTQ Loyalty Holdings, Inc. The fund will follow the LGBTQ100 ESG Index, which tracks 100 leading corporations that have established a solid track record of support on LGBTQ+ issues.

In an unusual twist, LGBTQ100 deploys survey results in addition to financial data.

“It is the first-ever index to incorporate LGBTQ community survey data into the methodology, generating a benchmark of the nation's highest-performing companies that are most committed to advancing equality,” Loyalty Holdings explains.

“For the 18-month period from November 2019 to April 2021, the Index generated a 43.84 percent return versus a 37.65 percent return for the S&P 500, while keeping volatility lower by 66 basis points of the benchmark,” the firm adds.

The index draws from a field of 500 publicly traded large-cap corporations that have a strong ESG profile, and that meet standards for supporting both gender equality and sexual orientation equality. In addition, these 500 companies must also demonstrate loyalty and brand awareness among the U.S. LGBTQ+ community.

New challenges for tailored ESG funds

In what amounts to a loud clap-back against the “woke corporations” slur, the LGBTQ100 index screens out companies in certain sectors including guns, tobacco, pornography and weapons of mass destruction. Companies that are over-dependent on gambling for revenue are also excluded.

These ethical judgements open the door to additional criteria for tailored funds. For example, a worker-focused index might exclude Tesla and Amazon due accusations of anti-union activity. Similarly, a privacy-focused index might exclude Facebook.

Nevertheless, all three of these corporations are listed in the top 10 of the LGTBQ index. To the extent that money talks, it is talking selectively.

New opportunities for tailored ESG funds

On the other hand, the intersection of LGBTQ rights with the Black Lives Matter movement could help raise the bar on the LGBTQ100 and other tailored ESG funds.

The murder of George Floyd last year sparked a fresh burst activity in the Black Lives Matter movement, and the impact rippled into the LGBTQ community with a renewed focus on issues that have an impact on people of color.

That intersection will intensify in the coming months. A wave of new state based voter suppression bills is sweeping across the country, in an apparent attempt to nullify the voice of Black citizens and other largely Democratic-leaning voters.

Many corporations have remained silent, but some have begun to push back on voter suppression in public. A recent report by CNBC reporter Brian Schwartz suggests that some corporate leaders have also been working behind the scenes to press for federal legislation on voting rights, including Nike and others in the LGBTQ100 index.

In addition, many corporations have been working within their organizations to make it easier for employees to vote. As indicated by Schwartz’s reporting, there is an overlap between the LGBTQ100 index and corporations that have signed on to the Time to Vote initiative of the Businesses for America organization.

Voter suppression and the trans rights battleground

So far, these efforts have met with little success. New voter suppression laws have already passed in more than a dozen states, and hundreds more are in the pipeline.

However, the concentration of power in the hands of conservative lawmakers may soon force business leaders to take stronger action. As an indication that human rights and voting rights are not two separate things, Republican lawmakers have added bills targeting transgender youth to their legislative to-do lists this year.

Money does talk, and business leaders who profess to support LGBTQ rights and the Black Lives Matter movement need to take action. Stopping financial support for anti-voting candidates for office is a good start, but that is weak tea when anti-voting legislators already control statehouses across the country. The next step, and a necessary one, is to start pumping funds into organizations like Democracy Docket, which are fighting to strike down laws that make it harder for Democratic-leaning voters to exercise their rights.

Larry Fink’s warning about stakeholder engagement rings true. In the coming months, business leaders who seek a position in the LGBTQ100 index should be taking a long, hard look at their policies on political donations and voting rights.

Image credit: Brielle French/Unsplash