Two steps back? The shifting investor focus on DEI

Over the past decade, diversity, equity and inclusion (DEI) have been prominent topics in corporate governance and investor engagement. However, as we move into 2025, there are growing signs that DEI is being de-prioritised, particularly in the US.

This shifting focus is driven by a combination of legal, political and market pressures, placing environmental, social and governance (ESG) initiatives, including DEI, under increasing scrutiny.

The wave of anti-ESG rhetoric in the US has led to both political and legal challenges against corporate DEI programmes, with some US states restricting the use of ESG factors in investment decisions. This has been exacerbated by the threat of legal action against companies actively promoting DEI. These evolving considerations have led to some asset managers facing questions on whether ESG factors have a place in their fiduciary duties and prompted a move towards reassessing their expectations of DEI. Although primarily US-focused, these changes could have ripple effects across the Atlantic to the shores of UK-listed companies. Especially those with strong ties to US operations or a large US shareholder base. 

Is this a temporary shift, or are we witnessing a lasting change?

The investor landscape: a changing tide

While many asset managers remain committed to DEI, approaches by some have changed. Recent stewardship policy developments indicate a more tempered but flexible stance:

• BlackRock: Once a vocal advocate for diversity, BlackRock has removed and reframed references to its DEI strategy in its latest Annual Report but still supports inclusivity more broadly under its Talent and Culture team. Its updated voting guidelines no longer include a disclosure-based vote policy but retain the option for action against Boards that are outliers relative to market norms.
• Vanguard: Despite some rewording and removal of minimum representation expectations, Vanguard still emphasises the importance of “cognitive diversity” resulting from an appropriate breadth of skills and experience, as well as a diversity of personal characteristics, such as age, gender or race/ethnicity. NomCo Chairs may still receive negative votes if Board composition is inconsistent with “market-specific governance frameworks or market norms”.
• State Street: The ‘Fearless Girl’ campaign sponsor has dropped targets for corporate Boards but still believes “a company’s long-term business strategy necessitates a diversity of backgrounds, experiences, and perspectives, which may include a range of characteristics such as skills, gender, race, ethnicity, and age”.

The changing tides in ESG commitments have already had significant financial consequences. Recently, the UK’s largest pension fund, The People’s Pension, announced it is pulling £28 billion in assets from State Street, citing concerns over a weakening commitment to responsible investment as a factor in the decision. Investors will need to balance political ESG concessions with the motivations of asset owners who continue to prioritise sustainability.

Investor support and corporate pushback

Despite these changes, investor support for DEI remains high. This was evident at the most recent Apple shareholder vote, where ~97% of shareholders voted against the proposal submitted by conservative think tank the National Center for Public Policy Research, asking Apple to “cease DEI efforts”. Additionally, investors, including Boston Common Asset Management and the University Pension Plan, have criticised ISS for pausing diversity considerations in US voting recommendations.

While some companies, including Ford, Accenture and Meta, have stepped back from progress on DEI, others are standing firm:

• Nasdaq, Inc.: Adena Friedman, CEO, said that "Diversity of views, and diversity of backgrounds, actually makes us a better company and makes us perform better. So, we're going to continue to operate in that way."
• JP. Morgan Chase: Jamie Dimon, CEO, made it clear the company will not be easily swayed, boldly stating, “Bring them on,” as the bank reaffirms its DEI commitment.
• Salesforce: Marc Benioff, CEO, has taken an admirable employee-first approach, stating that if "somebody's going to come after our employees or discriminate against them in any way, we'll do everything we can to help them, support them." Benioff stated that if an employee were to ask to relocate or leave the US, Salesforce would support them.

While US-based asset managers may be adjusting their stance, non-US investors continue to advocate for robust disclosures and momentum in sustainability. This emerging divergence between the US and the UK could create complexity for UK-listed companies in navigating varying expectations across their investor base and separating rhetoric from reality.

Guidance for listed companies

For UK-listed companies, the challenge lies in balancing regulatory expectations with shifting investor sentiment. Should DEI still be a core component of sustainability strategies? How should companies approach disclosure to align with evolving US shareholder expectations?

To stay aligned with regulatory requirements and investor expectations, companies should do the following:

• Integrate DEI within broader ESG and governance themes instead of treating it as a standalone issue. Bring the discussion into corporate culture, risk management and talent retention.
• Avoid knee-jerk reactions that could be detrimental to the company’s reputation. Recent polling indicates that a majority of the British public opposes reducing DEI efforts, with 53% stating it would be detrimental for UK companies to follow the US in curtailing these initiatives.
• Monitor peer and industry practices, allowing you to mirror positive movements or pivot to a stronger position as competitors backtrack on progress.
• Leverage regulations like the UK Corporate Governance Code 2024. The updated Provision 23 now requires descriptions of diversity and inclusion initiatives to include a clear link to company strategy. This strategic-relevance mindset will help to create a more credible narrative for DEI.
• Assess and engage investors to understand whether their expectations have changed or the arcane objectives behind reworded policies.

A temporary shift or a lasting change?

As some investors step back from their DEI commitments, the principles of diversity, equity and inclusion remain embedded in governance expectations. Companies should not see this setback as an opportunity to deprioritise DEI but rather as an opportunity to evolve their approach. Ultimately, transparency and strategic relevance will remain essential to building investor confidence, regardless of shifting trends.

If you or your team would like support on how to frame annual reporting and investor communications to resonate with today’s evolving investor landscape, please reach out to Paris.Mudan@luminous.co.uk.