The growing wave of right-wing opposition to Diversity, Equity, and Inclusion (DEI) corporate programs poses significant risks, particularly when double materiality assessments, as required under the European Union’s Corporate Sustainability Reporting Directive (EU CSRD), are not conducted. The absence of such assessments can undermine a company's ability to align with global sustainability standards and manage risks associated with social equity, reputation, and regulatory compliance.
Like many recent rulings coming out of the EU, the CSRD is designed to drive the rest of the global economy — including around 3,000 US companies — towards meaningful action and ESG disclosure. The European Union’s Corporate Sustainability Reporting Directive (CSRD) introduced rigorous sustainability reporting standards, requiring companies to adopt a double materiality assessment framework.
While this regulation primarily applies to businesses operating within the EU, its ripple effects are being felt globally. For companies in the S&P 500 and Russell 2000 indices, many of which have a significant presence in Europe, the CSRD creates both challenges and opportunities, particularly regarding their Diversity, Equity, and Inclusion (DEI) programs.
Many multinational companies, including those based in the U.S., will be required to report about their EU businesses in 2026 for the 2025 financial year. Moreover, investments in companies that fail to conduct diversity, equity, and inclusion (DEI) double materiality assessments will be subject to greater scrutiny and due diligence. In particular, by investors with over 100 trillion dollars in assets
such as UN PRI signatories, U.S. pension funds, endowments, foundations, and Taft-Hartley plans. This will lead to significant financial, reputational, and fiduciary risks.
These asset owners often have mandates aligned with sustainable investing and social responsibility, making their association with non-compliant companies increasingly untenable. Investment capital flowing into publicly traded companies with higher Environmental, Social, and Governance (ESG) ratings has been a growing trend in recent years.
ESG investing targets companies that meet certain ethical and sustainable criteria, and investors are increasingly recognizing the long-term value of supporting businesses that prioritize social responsibility, environmental stewardship, and good governance. Artificial Intelligence and data analytics provide investors with the ability to efficiently consume and evaluate global ESG corporate data .
The "S" in ESG plays a crucial role in shaping overall ESG consensus ratings, as social factors can influence both public perception and financial performance. Companies that excel in areas like labor practices, diversity, equity, community relations, and human rights can achieve higher social scores, boosting their overall ESG ratings. Conversely, companies that neglect social issues or are involved in social controversies may experience lower scores. As social factors continue to gain importance among investors and stakeholders, the impact of the "S" on ESG ratings is likely to grow, leading to more comprehensive and socially conscious corporate strategies.
Studies have consistently shown that corporations with higher Environmental, Social, and Governance (ESG) ratings often exhibit stronger investment performance, tend to attract more institutional investors, and benefit from lower costs of capital. These companies often have easier access to financing, which can lead to more strategic growth opportunities.
There is evidence of a "halo effect," where companies that excel in ESG practices are more positively perceived by investors, which may enhance stock performance. Investors, particularly institutional investors like pension funds, endowments, foundations, faith-based investors, insurance companies, etc, are increasingly seeking companies that align with their ethical values or offer long-term sustainability
Understanding Right-Wing Attacks on DEI Programs
The nature of attacks led by right-wing activists Edward Blum, Victor Ramaswamy, Robert Starbucks, Bill Ackman, Heritage Foundation Project 2025, and many others includes legislative pushback. State-level legislation in the U.S. and other right-leaning jurisdictions Republicans have targeted DEI programs, branding them as divisive or wasteful.
Public Campaigns by conservative advocacy groups and commentators often frame DEI initiatives as ideologically driven, calling for their reduction or elimination in favor of "merit-based" approaches and under the guise of a “ color blind “society. The Meritocracy Myth by Robert K. Miller and Stephen J. McNamee discusses the pitfalls of meritocracy and its failure to address inequality when merit is based on flawed or subjective measurements.
However, corporate fear of right-wing reputational damage and the incoming Trump administration has led some corporations like Walmart, John Deere, Ford, Molson Coors, Tractor Supply, Caterpillar, Lowes, Brown Forman, and Harley Davidson under pressure from these attacks, to scale back or eliminate DEI programs.
The goals of these attacks undermine corporate commitments to racial equity, gender parity, and other forms of inclusion. Anti-DEI shareholder proposals by money managers like Strive Investments and Victor Ramaswamy pressure corporations to align with political or ideological agendas opposing progressive social change.
Proponents argue that corporations should focus on profitability and . shareholder value. In contrast, supporters of DEI policies argue that diversity initiatives enhance innovation, improve decision-making, attract talent, and lead to better financial performance in the long term.
In the 2024 proxy season, the number of anti-diversity, Equity, and Inclusion (DEI) shareholder proposals increased compared to the previous year. A total of 30 such proposals were submitted, up from 15 in 2023. However, these proposals received minimal support from shareholders. On average, they garnered just 2% of the vote, consistent with the 2% average support in 2023.
Project 2025, developed by the Heritage Foundation and over 100 conservative organizations, outlines a comprehensive plan for potential conservative governance that wants to limit transparency in addressing systemic inequalities within workplaces and supply chains. Eliminating diversity, equity, and inclusion (DEI) data collection and other measures are aimed at rolling back corporate DEI initiatives.
In legal contexts, statistical evidence is crucial for identifying and proving patterns of discrimination, especially in employment. Courts often rely on statistical analyses to detect disparities that may indicate discriminatory practices. Critics of the Heritage Foundation express concerns that the implementation of this plan could lead to the suppression of diversity data and undermine civil rights protections. The legal and legislative challenges against DEI initiatives, particularly those led by Republican lawmakers and attorneys general, are largely based on concerns about DEI training.
Right-wing activists have blamed “ diversity training “ and created a straw man to engage in an anti-competitive campaign against diversity. The majority of legal and legislative challenges target DEI training programs, particularly those seen as promoting certain ideological views, such as critical race theory or identity politics.
The right-wing activists argue that these programs violate principles of free speech, equal protection, and individual autonomy. The focus here is on whether these programs force employees, students, or government contractors to adopt a specific ideological stance or engage in activities that are perceived as divisive or discriminatory
The potential suppression of diversity data, as suggested by Project 2025, poses significant challenges to identifying and addressing patterns of discrimination. Statistical evidence is a cornerstone of enforcing anti-discrimination laws; without it, the legal system's ability to uphold civil rights is compromised. Maintaining transparency and continued collection of diversity data are essential for promoting equality and preventing discrimination.
Project 2025 goal conflicts with the global investment community’s Environmental, Social, and Governance (ESG) expectations, which increasingly emphasize DEI metrics as critical indicators of corporate sustainability management practices
Reverse racism claims should be litigated in a court of law with legal evidence provided by plaintiffs to support discrimination allegations. Wholesale dismantling of DEI programs is not an answer to individual diversity training grievances and reserve discrimination claims.
DEI (Diversity, Equity, and Inclusion) and anti-DEI initiatives often diverge on their underlying philosophy, but both can find agreement on the idea that corporations should prioritize profitability and shareholder value creation. The key point of convergence lies in the argument that all corporate initiatives—whether DEI-related or opposing DEI—must ultimately align with the core objective of maximizing shareholder returns.
Impact of Dismantling Corporate DEI Programs Without Double Materiality Assessments
Diversity, Equity, and Inclusion (DEI) programs have become integral to fostering equitable workplaces, enhancing corporate reputation, and meeting stakeholder expectations. However, dismantling programs without conducting a double materiality assessment—which evaluates both financial and societal impacts—can have significant consequences..
A double materiality assessment identifies financial risks (e.g., loss of talent, reduced profitability) and societal risks (e.g., reputational harm, stakeholder disapproval). It highlights the opportunities DEI programs create, such as improved ESG performance, increased innovation, and stronger community ties. Companies need to balance stakeholder expectations. Internal stakeholders (employees, investors) and external stakeholders (communities, customers) may have different expectations. A double materiality approach ensures both groups are considered. It supports corporate decision-making with quantitative and qualitative data
Data-driven insights help leadership make informed decisions about retaining or modifying DEI initiatives, reducing the risk of unintended consequences. Double materiality integrates DEI into broader ESG strategies, ensuring the company’s actions align with global standards and stakeholder demands.
The potential consequences of dismantling DEI Programs without double materiality assessments are as follows:
Reputational Risks
Public backlash and negative media coverage could deter investors, customers, and partners who prioritize corporate responsibility. Communities and advocacy groups may view the company as abandoning equity commitments, eroding trust and goodwill. Scaling back DEI initiatives without evidence-based reasoning risks alienating key stakeholders, including employees, customers, and investors who value inclusivity.
A lack of DEI commitment may harm corporate reputations and may lead to brand erosion, especially among younger consumers and global markets where diversity and inclusion are prioritized.
Talent Acquisition Competition and Retention Risks
Diverse teams have been shown to drive innovation, improve decision-making, and increase profitability. Diverse teams foster creativity and innovation by incorporating a range of perspectives. Removing DEI programs could reduce these competitive advantages and may stifle innovation and limit market growth opportunities.
Companies risk losing diverse talent, which could lead to higher turnover costs, loss of innovation, and difficulty attracting top candidates. Employees may perceive the organization as regressive, reducing morale and damaging employer branding, especially among younger, values-driven workers. Companies have faced allegations of fostering toxic work environments. This creates challenges in attracting and retaining educated minority talent due to deficiencies in their Diversity, Equity, and Inclusion (DEI) initiatives.
An educated minority workforce applicants may select companies perceived as more inclusive and forward-thinking. Tech-savvy millennials can quickly access online information regarding a company's reputation and business practices with Chat GBT artificial Intelligence and social media
The Costs of Discrimination
Thomas Sowell, a noted economist and Hoover Institution social theorist has written extensively about the economic and social consequences of discrimination. In his work, he often emphasizes how discrimination imposes costs not only on those who are discriminated against but also on the individuals, groups, and societies engaging in discriminatory practices. Sowell argues that discrimination leads to a misallocation of resources. When qualified individuals are excluded from opportunities based on race, gender, or other characteristics, businesses and societies lose out on potential talent, innovation, and productivity.
Sowell believes that competitive markets can reduce discrimination over time and posits that businesses that prioritize competence over prejudice gain a competitive edge. Companies can attract a more skilled and diverse workforce. Over time, this pressure incentivizes profit-seeking entities to prioritize merit over bias. Sowell highlights that discrimination isn't free for those who practice it. For example, an employer who hires less competent workers due to racial bias bears higher costs in terms of inefficiency or reduced profitability.
The Citigroup study titled "Closing the Racial Inequality Gaps: The Economic Cost of Black Inequality in the U.S." (2020) provides a detailed analysis of how racial discrimination and inequality have significant economic costs for the United States as a whole. The study focuses on the impact of systemic racism and quantifies the economic losses that have resulted from discriminatory practices and policies. The study estimated that racial discrimination against Black Americans cost the U.S. economy $16 trillion over the past 20 years (2000–2020). If racial gaps in key areas were addressed, the U.S. economy could gain $5 trillion in GDP. This study underscores the enormous costs of systemic discrimination, showing that inequality is not just a social justice issue but also an economic one. Addressing these disparities is not only a moral imperative but also a practical strategy for boosting economic growth and resilience. The findings highlight the importance of policies that promote equity in wages, education, housing, and entrepreneurship to unlock the full potential of the U.S. economy.
Investor Capital and ESG Risk Metrics
Dismantling DEI programs could negatively affect ESG (Environmental, Social, and Governance) ratings, deterring ESG-focused investors and potentially increasing capital costs.
Shareholders advocating for equity will initiate activism, pressuring companies to reinstate DEI initiatives. Non-compliance with the EU Corporate Sustainability Reporting Directive (CSRD) and SEC Regulation S-K (particularly ESG-related disclosures) impact ESG ratings due to agencies' reliance on comprehensive and accurate disclosures to evaluate corporate sustainability performance.
Failure to provide required disclosures creates gaps in publicly available information, also leading to lower ESG scores. A lack of transparency signals to rating agencies that the company may not prioritize ESG or sustainability. ESG frameworks often penalize companies for regulatory violations or insufficient reporting. Non-compliance can erode investor trust, especially among institutional investors prioritizing ESG criteria. Regulators, consumers, and advocacy groups may view non-compliance as a litigation risk. Global regulatory misalignment with reporting frameworks like the EU CSRD and ESG ratings undermines a company’s ability to attract investors focused on sustainability and corporate accountability.
Legal and Regulatory Risks
Without DEI programs, companies may face higher risks of discrimination claims, pay equity lawsuits, or compliance violations under Equal Employment Opportunity (EEO) regulations. Perceived non-compliance or regressive actions could provoke regulatory scrutiny or community-driven legal challenges. Compliance with EU CSRD law will require companies operating in the EU or with substantial business in Europe to adhere to double materiality requirements in their sustainability disclosures. Failure to conduct DEI materiality assessments could lead to regulatory penalties and legal challenges under EU law. SEC Regulation SK non-compliance also presents potential US regulatory and legal challenges
Customer Backlash
Consumers, especially Communities of color, Gen Z, and Millennials, increasingly prioritize brands that align with their values. Eliminating DEI programs could lead to boycotts or reduced sales. Communities may view the company as disregarding societal progress, weakening local partnerships and relationships. Black and Latino consumers in the United States wield significant spending power, reflecting their growing influence on the US economy.
As of 2023, Together Black and Latino communities represent over $4.7 trillion in spending power, underscoring their importance to businesses and policymakers. These groups are not only critical consumers but also shape trends in culture, technology, and media, making them essential to corporate strategies aimed at long-term growth and equity. The browning of America makes minority consumers integral to US corporate profitability. Companies that fail to address the societal impact of their actions, particularly through DEI initiatives, risk losing their social license to operate, especially in diverse communities.
Removing DEI programs could deepen systemic inequalities, contradicting broader ESG goals and creating long-term societal challenges that indirectly affect corporate profitability. Black and Latino worker pension beneficiaries invest billions of dollars of their retirement savings in publicly traded companies. Corporations rely on a massive capital pool of public sector workers (e.g., teachers, municipal workers) pension contributions. Minority workers have the right to ask questions and demand pension fund investments align with their values, including racial equity, diversity, and inclusion initiatives.
Non-Compliance with SEC Human Capital Regulation S-K Materiality Disclosure Requirements
In August 2020, the SEC amended Regulation S-K to require disclosure of material human capital measures or objectives.
The requirements highlight the importance of human capital disclosures, aiming to provide investors with insights into how companies manage and value their workforce.
These requirements are grounded in materiality, meaning companies must disclose human capital metrics significant to their financial performance and operations. Investing in human capital is a critical corporate balance sheet issue and often represents a company's largest expense, particularly in sectors driven by knowledge and service rather than physical assets.
Human capital investment fits into corporate financial frameworks and is the largest balance sheet expense. Salaries, benefits, and training typically account for a significant portion of a company’s operating expenses. For many service-oriented or tech firms, labor costs can constitute 50–70% of total expenses. These costs directly impact profitability and cash flow, making effective management critical to financial health.
Diversity, Equity, and Inclusion (DEI) is a core component of human capital management, reflecting the strategic value of creating a workforce that is representative, equitable, and inclusive. When companies embed DEI into their human capital strategies, they not only enhance their workforce's potential but also unlock opportunities for improved performance, innovation, and market competitiveness. Companies must identify human capital issues that significantly affect their business operations, financial condition, or results of operations
Qualitative and Quantitative Disclosures may include numerical data (e.g., employee headcount, diversity percentages) and descriptive information (e.g., policies for employee well-being or DEI initiatives. Human Capital Management is critical to board governance and financial balance sheet issues. It is material information for investors to make informed decisions regarding the efficacy of corporate management policies and practices that maximize profits for shareholders
Conclusion
Shareholder and stakeholder advocacy groups, elected officials, policymakers, and impacted communities of color should demand independent reviews of diversity programs. Double materiality provides a comprehensive framework for understanding the value and impact of DEI initiatives. without such assessments, corporations lack the data and justification needed to defend DEI programs against ideological attacks. Double materiality assessments allow companies to have evidence to quantify the financial benefits of DEI programs (e.g., better employee retention, increased innovation, expanded customer base). Companies can demonstrate the societal impact of their DEI programs’ alignment with global investment capital, ESG metrics, and frameworks such as the UN Sustainable Development Goals (SDGs) UN Principles for Responsible Investment ( UNPRI ) signatories representing asset owners with over 100 trillion dollars under management
Right-wing attacks on corporate DEI programs, if successful, can have far-reaching consequences for companies, particularly those operating in jurisdictions where EU CSRD double materiality assessments are required. Transparency is key to assessing the materiality of DEI initiatives and builds trust with stakeholders, including employees, investors, US elected officials, ESG rating agencies, and regulators. Companies can make data-driven cases for the retention, expansion, or modification of DEI initiatives, by demonstrating their value both to the company’s bottom line and to society at large.
This approach not only strengthens EU CSRD and SEC regulatory compliance but also ensures alignment with global sustainability trends and anti-DEI activists’ expectations of long-term corporate profitability and shareholder value creation
