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Strong diversity and inclusion practices are good for business

As part of our ESG research at Credit Suisse we have regularly analysed the topic of workplace diversity and correlations of corporate performance. In CS Gender 3000, we showed that increased gender diversity at senior management and board level coincides with superior share-price performance. Workplace diversity and inclusion can be expanded beyond gender to also include: sexual orientation, age, ethnicity, race and socio-economic factors. Our LGBT 350 analysis investigates the performance of companies with strong diversity and inclusion practices. We found that a basket of 350 LGBT friendly companies performed better in terms of financial performance and share price performance than the MSCI AC World index for the same period.

Europe's slow progression

Despite recent news in Switzerland moving towards equal marriage rights, Europe is not improving according to ILGA-Europe as the score for 49% of the countries showed no improvement in 2020. Developments in family legislation are slowing down across Europe while equality action plans have either expired or face shortcomings. Regression is most visible according to the ILGA where civil and political rights are eroded.

Why a pro-active LGBT approach is good for business

In recent years, 83% of Fortune 500 companies have implemented non-discrimination policies to include gender identity.

The voice of support and vow to protect employee rights has given a trustworthy platform to connect with consumers of all gender and sexual orientations. Market data suggests that LGBT+ consumers spend more on a range of products and services than non-LGBT+ consumers. This insight, in tandem of the growing USA population of individuals identifying as LGBT+, proves that the continuation of support towards the PINK (Partner Income No Kids) dollar can have a sizable impact on the company's bottom line. In fact, if the LGBT community were an economy, it would be the third largest in the world.

The need for companies to take a pro-active LGBT+ approach is obvious in our view. With LGBT+ consumers making up between 5%-10% of the population we estimate that consumer spending by LGBT+ could represent as much as $5.6 trillion.

Eugène Klerk, Head of ESG research

Does diversity and inclusion move the needle on stock prices?

In the Diversity "The LGBT 350" report, the Credit Suisse ESG team analysed 350 company's approach to LGBT+ equality in the workforce to understand what drives success. The analysis does not aim to prove that a company's focus on LGBT+ equality is the reason for potential outperformance. It merely highlights that these factors coexist for the average stock in the LGBT-350. Among these companies, 27 score above average on profitability, all 29 score above average on ESG scores while 22 also have above average earnings revisions and share price momentum. When reviewing the returns by year we find that the LGBT-350 has outperformed the broader equity market in 7 out of the last 11 years.