In recent developments, major US companies such as Meta, McDonald’s, Walmart, Bank of America, and BlackRock have revised their diversity, equity, and inclusion (DEI) strategies.
According to ESG News, despite these changes, a new report from Morningstar Sustainalytics suggests that these rollbacks will have a minimal impact on ESG (Environmental, Social, and Governance) risk ratings. However, the nuances of these adjustments and their broader implications merit closer attention from investors.
Head of Sustainable Investing Research at Morningstar Sustainalytics, Hortense Bioy highlighted that while DEI modifications raise concerns, they are unlikely to drastically alter companies’ ESG risk assessments. “The DEI rollbacks have raised concerns among some investors, as many employers believe that diversity is good for business. Overall, we found that the recent changes will have a limited impact on ESG risk, but investors should focus on understanding the nuances between the different types of changes to identify those that matter most to them,” Bioy explained.
The report categorizes the DEI changes into three distinct types: substantive policy changes, reframing or repositioning initiatives, and discontinuation of peripheral DEI initiatives. For instance, Meta has eliminated specific diversity hiring goals and shifted its training focus, while McDonald’s has ceased its supplier diversity commitments. Bank of America has disbanded its global diversity council, previously chaired by the CEO. Conversely, companies like BlackRock have merged their DEI and talent management groups, softening their public messaging on diversity to focus on broader themes like ‘connectivity.’
Interestingly, despite these rollbacks, firms such as Costco, Delta Air Lines, and Apple continue to support their DEI policies actively, even in the face of potential legal challenges spurred by shifting legal and political contexts, including a significant January 2025 executive order from former President Trump that scrutinizes corporate DEI programs more closely.
The DEI changes, though substantial in some cases, represent about 40 per cent of the human capital management assessment within Sustainalytics’ ESG Risk Rating, holding a relatively low overall weight. Therefore, the recent revisions are not expected to significantly impact ESG ratings. Nonetheless, Bioy advises investors to remain alert, stating, “Investors should look closely at announced changes in DEI initiatives to better assess whether these changes represent material shifts in corporate policy, which may result in increased ESG risks, or whether they are merely a reframing of the public discourse on DEI.”
While the direct effect on ESG risk ratings may be limited, the broader implications, such as potential erosion in other vital ESG areas like climate risk management, continue to pose concerns for the future.
