Despite divisive political rhetoric, DEI is alive and well

DEI is dead. Long live DEI.

The World Economic Forum's "Future of Jobs" report published on 7 January 2025 — which collates the views of over 1,000 employers globally, representing more than 14 million workers across 55 economies — found that adoption of DEI initiatives has continued to rise.  For anyone monitoring the recent political headwinds, particularly following a divisive U.S. election and fierce anti-DEI rhetoric from some prominent politicians, business leaders and Wall Street executives, those findings may be surprising. Indeed, less than a year ago, Bloomberg News described diversity, equity and inclusion initiatives on Wall Street as "anxious, fraught and changing fast," with Subha Barry, former head of diversity at Merrill Lynch, proclaiming, "We're past the peak."

The World Economic Forum report shows that 83% of employers say they have DEI initiatives in place, up significantly from 67% in 2023. It also found that an ability to tap into diverse talent pools is now considered among the top five most effective business practices for increasing talent availability, up from 11th place last year, and that DEI adoption is particularly popular for large employers with over 50,000 employees (95%) and, perhaps surprisingly, for companies headquartered in North America (96%).

For those employers planning to implement some form of DEI measure, the financial sector ran ahead of the global average in terms of the percentage support for specific actions: running comprehensive DEI training for managers and staff; (58% vs. 51%) targeted recruitment, retention and progression initiatives; (57% vs. 48%) and pay equity reviews and salary audits (47% vs. 39%).

The World Economic Forum's findings naturally raise the question of whether reports of the death of DEI are, in fact, exaggerated, and how, focusing on the U.K. and U.S. in particular, DEI may fare in 2025.

The U.K.

The World Economic Forum has reported that in the United Kingdom over the next few years, 58% of employers surveyed across all sections are planning to implement comprehensive DEI training; 58% have planned targeted recruitment, retention and progression strategies; and 52% have planned to set DEI goals, targets or quotas — more than half for each metric.

An overarching commitment to DEI in the financial sector, specifically, remains. The Investment Association's November 2024 report, comprising a poll of 58 investment and fund managers employing 81% of the 45,800 people directly employed in the industry, found that "fostering [DEI] remains an important strategic objective for investment managers" and that crucially, despite cost pressures affecting the industry, responding firms had not sought to reduce their spending on DEI.

This is despite the financial services regulators changing tack on diversity reporting. In September 2023, the regulators began consulting on proposals in two key areas for development, non-financial misconduct and DEI, with the Financial Conduct Authority noting, "Greater levels of diversity and inclusion can improve outcomes for markets and consumers."

The consultation proposals included requiring firms with 251 or more employees to: (1) report their average number of employees to the authority yearly, (2) collect, report and disclose certain diversity and inclusion data, (3) establish, implement and maintain an inclusion strategy, (4) determine and set appropriate diversity targets, and (5) recognize a lack of diversity and inclusion as a non-financial risk.

However, after the House of Commons Treasury Committee's "Sexism in the City" report in May recommended that the proposals be dropped — given that following them would simply be an exercise in checking boxes and that the market itself should act without regulatory intervention — the Financial Conduct Authority conceded and confirmed that it would instead prioritize work on non-financial misconduct.

The report says that rather than the regulators, "boards and senior leadership of firms should take greater responsibility for improving diversity and inclusion given that it should lead to a competitive advantage in the development of talent."

Contrary to the position taken by the financial services regulators, the law is changing to impose more diversity reporting focusing on pay gaps between particular groups in the U.K. and Europe.

In Europe, the Pay Transparency Directive imposes obligations to report on gender pay gaps and provide information on pay to workers and job applicants.

There is a similar theme in the U.K., with a plan to consult on a new Equality (Race and Disability) Bill that will mandate, for "large" employers with 250 employees or more, ethnicity and disability pay gap reporting beyond the current gender pay gap reporting duty.

Also, in respect of the gender pay gap, the Employment Rights Bill proposes to require large employers to develop and publish a plan to advance the equality of opportunity between male and female employees, to address the reasons for a gender pay gap. Under the Equality (Race and Disability) Bill, the Labour government also plans to extend equal pay law to cover not just gender under the Equality Act of 2010, but also ethnicity and disability, as well as outsourced workers.

These changes will mark a notable departure from the current law and will see companies having to collect a wider source of data and take steps to address some issues identified. There is also likely to be an increase in equal pay litigation as more people can bring a claim. As equal pay litigation in the U.K. to date has involved very high-value claims from huge employee populations, this is a significant development for employers.

A recent report by the organization Reboot, an independent group of financial services industry professionals, and the research house Coleman Parks found overwhelming support for ethnicity pay gap reporting. The report was compiled through a survey of 800 respondents, 700 with ethnic minority backgrounds and 100 white, who have been working in the financial services sector for at least 10 years. Reboot said 84% of respondents said they believed that ethnicity pay gap reporting should be mandatory, and 87% said they agreed that companies should disclose pay gap data alongside a concrete plan for resolving inequities.

Thus, DEI efforts look far from dead in the U.K. Indeed, reporting obligations and a prospect of more litigation together with existing business drivers make it an area of focus going forward.

The U.S.

While the World Economic Forum report presents a somewhat positive outlook, in the U.S., the political climate is undeniably shifting, with individual employers' DEI efforts now facing very public scrutiny.

Elon Musk, a fierce critic of DEI, is head of the new Department of Government Efficiency, a temporary agency tasked with reducing government waste. The department is expected to recommend an agency-wide purge of spending on DEI, with entire DEI-focused divisions across the government facing elimination.

In his first few days in office, President Donald Trump issued a presidential action "encouraging the private sector to end illegal DEI discrimination and preferences" and directing all federal agencies to identify up to nine publicly traded companies, large nonprofits or other organizations that could be subject to civil investigation into "illegal discrimination or preferences."

Until now, prominent employers caught between the outgoing and incoming administrations have been taking divergent approaches. A group of 19 state Republican attorneys general recently urged Costco to drop its DEI policies; the company resisted an earlier call by shareholders to do so. Its rival Walmart announced in November that it was rolling back some DEI initiatives.

In the financial services sector, JPMorgan Chase has recently faced shareholder proposals seeking the elimination of policies tying executive pay to DEI efforts.[16] Last March, Bloomberg News, reporting on the pulling back of various DEI initiatives on Wall Street at the time, noted that:

• at Bank of America Corp, internal initiatives focusing on women and ethnic minorities were being expanded to include everyone
• at JPMorgan Chase, a summer fellowship program for Black undergraduate sophomores was opened to all sophomores 'regardless of background'
• at Goldman Sachs, a ‘Possibilities Summit’ for Black college students was opened to white students
• at Bank of New York Mellon Corp, the company was rethinking diversity targets following legal advice

Yet in September, JPMorgan Chase CEO Jamie Dimon, speaking at a Council of Institutional Investors conference, reaffirmed the company's commitment to DEI: "It's good for business; it's morally right; we're quite good at it; we're successful." Goldman Sachs also announced that it was expanding its One Million Black Women initiative and doubling the number of candidates in its Black in Business education program.

It appears that some DEI initiatives remain popular while others may be less so. The World Economic Forum report found enthusiasm for DEI training (67% of employers headquartered in North America aid they planned to do so between 2025 and 2030); for carrying out pay equity reviews (64%), and for pursuing targeted recruitment, retention and progression programs (79%). In contrast, only 27% are looking to employ a dedicated DEI officer.

It is fair to say that even without the pressure from the federal government, employers appear to be reconsidering their DEI efforts to see if they are achieving what they want them to. While DEI officers may be less popular, key training programs and audits still have popularity even if programs in the U.S. are now likely to be extended to all rather than being focused on the relevant minority group. The picture is somewhat different in the U.K., where such programs still appear to be popular and targeted.

Tips for Employers

Employers should consider auditing their current data collection methods and plan how to expand data capture in the light of the new European pay transparency directive and the U.K. government's proposed Equality (Race and Disability) Bill.

The former received approval in March 2023 and must be implemented by June 7, 2026, while a draft bill for the latter is expected to be published at some point during this parliamentary session, with further consultation required before being implemented. Employers will then want to consider the draft bill to determine how to collect ethnicity and disability data in the specific format prescribed by the government, which may differ from any categories currently being voluntarily collected.

At the same time, employers should be careful about overcollection of data, which could be disclosable in litigation.

While further regulations are required before the Employment Rights Bill provisions requiring gender equality plans can be enacted — these are not expected until the second half of 2025 or early 2026 — employers should be considering action plans as soon as possible.

Ideally, when such reports become mandatory, employers will have already identified steps to be taken to address pay gaps and will have started implementing them, which will look better in the action plan. While it is not clear if the requirement will be expanded to include disability and race pay gaps, employers may choose to do so voluntarily. However, employers should beware that published action plans are liable to public and stakeholder scrutiny and employers will be held accountable for meeting the steps in those plans.

For international employers that are reluctant to focus on DEI initiatives, it will be important to emphasize, in addition to any business drivers, the absolute obligations in particular jurisdictions regarding data reporting and action plans.

International employers should also consider the increased litigation risk in the U.K. as the Equality (Race and Disability) Bill introduces more grounds for equal pay claims; for example, claims based on race and disability.

While the political waters are undoubtedly turbulent, as the World Economic Forum report has shown, DEI remains an important business objective for clear reasons, including retention and recruitment of talent. Employers should consider which initiatives are working for their organization, and why.

This article was first published by Law360 on 31 January 2025.