The Legal Issues Surrounding Diversity, Equity And Inclusion Programmes

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The Legal Issues Surrounding Diversity, Equity And Inclusion Programmes

As ESG has become increasingly politicized in the US, we have seen an exponential rise in ESG-related lawsuits. While climate lawsuits – such as the recently decided Held v. State of Montana case – are making major headlines, DEI-related lawsuits are also becoming increasingly common. According to an analysis by Bloomberg Law, 22 ESG-related complaints focused on corporate employment and DEI were filed in US federal courts in 2022 and the first quarter of 2023.

In one such case, the National Center for Public Policy Research (NCPPR) – a nonprofit that holds approximately $6,000 in Starbucks stock – filed a lawsuit against Starbucks’s executives and directors for violating their fiduciary duty through the firm’s corporate diversity policies. NCPPR claimed that Starbucks’s policies – relating to hiring goals, awarding contracts to “diverse” suppliers and advertisers, and tying pay to diversity – violated federal and state civil laws. On August 11, 2023, a judge dismissed the lawsuit and blocked NCPRR from refiling the suit.

While the decision in the Starbucks case is a small victory for proponents of DEI programmes, firms such as Amazon and Target are waiting to see how pending lawsuits against them will play out. Other corporates also remain on edge about future legal action against their DEI programmes, especially after a group of Republican attorneys general issued a letter to numerous Fortune 100 firms in July 2023, warning them against using race-based hiring practices. This letter came at the heels of the US Supreme Court’s decision to reject affirmative action in collegiate admissions, ending decades of race-conscious admission programmes in universities across the country. The US Supreme Court’s decision left corporates and their legal teams wondering about the ripple effects on corporate DEI programmes.

Despite political pressures, firms should not abandon their DEI initiatives. Instead, corporates should make a business case for their DEI programmes, either by leveraging studies like those conducted by McKinsey or by using internal data to demonstrate the correlation between corporate diversity and financial performance. Additionally, organizations must take a closer look at their DEI programmes to ensure they are compliant with all federal and state-level requirements – and that they provide employees with adequate training in lawful employment practices. This will require collaboration between multiple departments, such as those working in sustainability, human resources, supply chain, legal and compliance teams. Finally, firms should be conscious of the impact DEI investments have on their ability to attract and retain employees.

To learn about how services firms can help develop and strengthen DEI programmes, see Strategic Focus: How Consulting Services Support ESG-Aligned Social Performance; for more information on digital solutions to help collect and track DEI-related data, see Smart Innovators: Social Impact Solutions.

Jessica Pransky

Principal Analyst

Jessica is a Principal Analyst in the Verdantix ESG and Sustainability practice, which she joined in 2022. Prior to joining Verdantix, Jessica worked in consulting, focusing on ESG risk and opportunity identification, as well as EHS due diligence. Her current agenda covers ESG solutions for investors, ESG software, and risk in ESG and sustainability.