• Recent DEI rollbacks at major US companies likely won’t significantly alter ESG Risk Ratings.
• Investors should closely examine changes to distinguish substantive policy shifts from superficial reframing.
• Broader investor concerns remain over potential weakening of other ESG commitments, including climate disclosures.

Major US corporations, including Meta, McDonald’s, Walmart, Bank of America, and BlackRock, have recently scaled back their diversity, equity, and inclusion (DEI) initiatives. However, these changes may have limited direct effects on ESG Risk Ratings, according to Morningstar Sustainalytics.

Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics, states, “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.”

What’s Driving the Rollbacks?

Most companies attribute these rollbacks to shifting legal and political landscapes, notably a January 2025 executive order from former President Trump, directing increased scrutiny of corporate DEI programs. Companies now risk legal challenges if DEI initiatives are deemed discriminatory.

Despite potential litigation, several companies—including Costco, Delta Air Lines, and Apple—continue to publicly defend their DEI policies. Anti-DEI shareholder proposals have largely failed.

Three Types of DEI Changes Observed:

1. Substantive Policy Changes:
   • Companies such as Meta, McDonald’s, and Bank of America removed key diversity targets or initiatives. For example, Meta scrapped its diverse hiring slate and refocused training programs. McDonald’s retired supplier diversity commitments, and Bank of America dissolved its global diversity council formerly chaired by the CEO.
2. Reframing or Repositioning Initiatives:
   • BlackRock combined its DEI and talent management teams into a single talent and culture team, changing messaging to softer terms like “connectivity.” Similarly, Bank of America emphasized veterans and neurodiverse groups over traditional diversity categories.
3. Discontinuation of Peripheral DEI Initiatives:
   • Walmart scaled back investments in racial equity projects and adjusted monitoring efforts related to transgender products aimed at minors, actions considered non-material to overall diversity strategy.

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Impact on ESG Risk Ratings:

DEI initiatives represent about 40% of the human capital management assessment within Sustainalytics’ ESG Risk Rating but hold relatively low overall weight. As a result, the recent rollbacks aren’t expected to significantly influence ESG ratings.

However, investors are advised to remain vigilant. Bioy cautions, “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.”

Beyond immediate ratings, broader implications persist—particularly concerns about whether scaling back DEI signals potential weakening of commitments in other critical ESG areas, including climate risk management.

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