Did Investments in LGBTQ Diversity Help Improve Relative Corporate Performance During the COVID-19 Crisis?

The impact of companies’ environmental, social, and governance (ESG) policies and practices, particularly sociopolitical activity, on corporate performance is a hotly debated issue. Proponents of corporate ESG efforts and sociopolitical activism believe these actions build corporate social capital that will protect overall corporate value during challenging times and after negative corporate publicity. Corporate LGBTQ inclusiveness is a social dimension of ESG that some stakeholders may consider sociopolitical activism that requires extra effort and cost. We address the impact of corporate LGBTQ inclusiveness policies during challenging economic conditions, using the COVID pandemic as a natural experiment. We examine the association between ratings of organizations based on their policies and activities in support of LGBTQ employees and the LGBTQ community, the Corporate Equality Index (CEI), and corporate performance during challenging economic conditions. We show that CEI rankings before the pandemic are positively and significantly related to Tobin’s Q in 2020 and the change in Tobin’s Q from 2019 to 2020. Also, panel data analysis shows that the positive impact of CEI on Tobin’s Q is more salient in 2020. This study provides evidence that ESG investments in diversity helped improve corporate performance, especially during the COVID crisis.