Impact of Recent DEI Initiatives by Leading Firms on ESG Risk Assessments
In recent news, leading U.S. corporations, including Meta, McDonald’s, Walmart, Bank of America, and BlackRock, are revising their diversity, equity, and inclusion (DEI) strategies. This shift is important for investors and stakeholders to understand, especially in light of new findings regarding the impact on ESG risk ratings.
Overview of Recent Changes in DEI Strategies
According to a report by ESG News, these significant changes in corporate DEI strategies may not significantly affect companies’ Environmental, Social, and Governance (ESG) risk ratings. Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, emphasizes that while these adjustments raise concerns, their overall impact on ESG assessments is expected to be minimal.
The Nature of DEI Adjustments
Morningstar Sustainalytics categorizes the recent DEI changes into three primary types:
- Substantive policy changes: This includes significant alterations to existing DEI initiatives.
- Reframing or repositioning initiatives: Companies are changing the focus or messaging of their DEI efforts.
- Discontinuation of peripheral DEI initiatives: This involves ceasing certain DEI programs that are not central to business operations.
For example:
- Meta has removed specific diversity hiring goals and altered its training approach.
- McDonald’s has discontinued its commitments to supplier diversity.
- Bank of America has disbanded its global diversity council, which was previously chaired by the CEO.
- In contrast, BlackRock has integrated its DEI and talent management groups, shifting its public messaging to emphasize broader themes like ‘connectivity’.
Continued Support for DEI Initiatives
Interestingly, despite the rollbacks, companies such as Costco, Delta Air Lines, and Apple remain committed to their DEI policies. They are actively promoting these initiatives, even amid potential legal challenges stemming from shifting political landscapes, such as the anticipated executive order in January 2025 from former President Trump, which scrutinizes corporate DEI efforts more closely.
Impact on ESG Risk Ratings
The changes to DEI strategies, while significant, account for approximately 40% of the human capital management assessment within Sustainalytics’ ESG Risk Rating. Given this relatively low weight, the recent adjustments are not expected to dramatically affect overall ESG ratings.
Bioy advises investors to pay close attention to these DEI changes, as they may represent material shifts in corporate policy, leading to increased ESG risks. She states, “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.”
Broader Implications for ESG Areas
While the immediate effects on ESG risk ratings may be limited, concerns persist about the potential erosion of other critical ESG areas, including climate risk management. Investors and stakeholders should remain vigilant as these changes unfold.
For further insights on corporate sustainability and ESG practices, consider visiting Morningstar and Sustainalytics.
