The Future of DEI and ESG in a Hostile Political Environment

0:07Hello, and welcome to The Debrief from The Business of Fashion, where each week we delve into our most popular BOF professional stories with the correspondents who created them. I'm executive editor Brian Baskin. In the late 2010s, and especially after George Floyd's murder in 2020, the fashion industry seemed like it found religion on racial justice, climate change, and a host of other progressive issues. But even as company after company announced new diversity, equity, and inclusion departments and ambitious emissions targets, there were always voices, often in the same groups companies said they were trying to help, who said this new activism was more about selling products than making the world a better place.

0:47They predicted the industry would abandon their new causes as soon as they hit their first roadblock. And it's starting to look like those critics might have had a point. Companies began quietly pulling back on hiring initiatives, grants for Black founders, and other DEI efforts in 2023 after the Supreme Court ruled some affirmative action programs unconstitutional. And this has threatened to turn into a full-on stampede after Donald Trump's election in November, especially after Walmart, the world's largest retailer, said it would drop most of the DEI programs it launched in 2020. And there's mounting concern about a similar retrenchment with sustainability, where the fashion industry is falling well short of its climate goals and facing a similarly hostile political environment in America.

1:30Is this really the end of fashion's bet on the value of its values? With me today to discuss is my co-host Sheena Butler-Young, who is also a Business of Fashion senior correspondent covering workplace and talent, and our chief sustainability correspondent, Sarah Kent. Hello, Sarah, and hello, Sheena. Welcome to the Debrief podcast. Hi, Brian. Thanks for having me back. It's good to be here on the other side of the conversation. Sheena, let's start with you. What did Walmart actually announce last month, And why was it seen in the fashion industry as such a pivotal moment? So Walmart is making sweeping changes to its DEI initiatives.

2:07There's a few big themes. So it's discontinuing priority treatment for suppliers based on race and gender. So that's where Walmart was looking to ensure that it had a diverse set of suppliers. So more women, more people of color providing the merchandise that it sells. It's removing certain transgender products from its online marketplace. This one's the kicker to me. it won't renew a five-year commitment to fund the Center for Racial Equity, which is a nonprofit that Walmart itself started in 2020 to address systemic racism. And it's also withdrawing from the Human Rights Campaign Corporate Equality Index, which is a benchmark that measures LGBTQ plus workplace policies.

2:46So Walmart is not alone in this. It's joined by Harley-Davidson, Lowe's, a whole host of companies in CPG and other sectors that are moving away from DEI initiatives and even the term DEI itself. Why Walmart is significant in this way is that it is the largest private employer in the U.S. and one of the largest retailers in the world. So where Walmart goes is often seen as the direction the rest of the industry, that's retail, fashion, CPG, will follow. And I think it's worth underscoring here that Walmart literally said they're going to stop using the term DEI at all. I think that really says it all about how toxic that phrasing, at least, has become in corporate America.

3:28For sure. I think that the term or the acronym DEI has become so politicized. It's like following the trajectory of woke, something that started off as having some good intentions and some really value-driven tenets. and suddenly it's co-opted and it becomes something almost derogatory. A DEI expert explained this to me a while ago. Diversity, equity, inclusion are just very basic values, right? So diversity, think about biodiversity. In the ocean, it just exists. There's a bunch of plants, there's a bunch of animals, there's a bunch of wildlife, and that's just there. That's how the world is.

4:03There's diversity in the world, in corporate spaces. Inclusion is just a very simple thing. Who wants to be left out? Equity means you want to be treated fairly. These were very basic values that somehow, once we phrased them as DE &I, they just went wild. They were very basic values that somehow got lost in politics over the last four years. And because DE &F fashion was birthed out of the police killing of George Floyd, I think the foundation was very tenuous to begin with for a lot of people. Let's unpack that a bit. I think most people would agree that the fundamental values here are pretty uncontroversial.

4:44But even among some of the underrepresented communities that are purportedly being helped by these initiatives, there was a lot of ambivalence. And I've seen in your reporting people saying, well, I support the idea of DEI. I do not like how it's being implemented at my company. For sure. You know, DEI in fashion specifically was formed for the first time in 2020. Most companies did not have a D &I department before George Floyd. So if you go back to that time, these departments were formed in haste. They were reactionary. They were emotional. I've heard people say that might have been appropriate.

5:21Like imagine, you know, there's a murder and there's protests on the streets and companies coming forward and saying, how do we turn this into a business imperative? That probably would not have made sense. So that initial reaction isn't wholeheartedly flawed. But because it formed that way and companies never really moved beyond emotions and what some people might call performative reaction into the actual business imperative, it was very easy for DEI to lose its way. So it wasn't effective. It wasn't effective beyond those initial, we'll do better. Well, you know, we care about black people and gay people, whatever other identity has been underrepresented for a long time.

5:58We never moved beyond that conversation into how is this good for business? Why does this matter for a company beyond social good and social impact? And I think that begs the question, what then will happen within these companies when the formal structures of these programs go away? I was looking at Walmart's announcement when they withdrew their formal DEI efforts. And even as they're saying, we're not going to use the term DEI anymore, they said they still want to foster a sense of belonging to open doors to opportunities for all our associates, customers, and suppliers, and to be a Walmart for everyone.

6:31Now, can they do that without having a DEI department, without having these external initiatives that they were a part of, without talking about it externally? Well, I've seen a couple schools of thought on that. I think it's okay to move beyond constantly referring to what you're doing, right? And having it be woven into your business practices and you don't have to call it diversity, you don't have to call it equity, you don't have to call it inclusion. The risk is that a lot of companies that say they're moving beyond calling the thing the the thing and doing the work, often they're doing neither.

7:03This came up, and Brian, you and I have discussed this quite a bit. This came up with the Pride Month and the Black History Month observances that a lot of companies moved away from. I did a story this year on why it seems like fashion forgot about Black History Month. And I talked to a lot of brands that were very vocal, that had campaigns. They said, well, you're not doing it this year. And they said, oh yeah, because we're doing it all year round. We don't want to be performative. And then you ask them, can you point me to some of the things you're doing all year round. And it was hard to find an answer.

7:31So I think that's the risk. We don't have to scream D and I from the mountaintops, but I think what companies are doing is saying that they're not talking about it and they're going to actually just live it. And then neither thing is happening. That's the fear and that's the risk. I do think there's something to be said that Walmart even now feels the need to, you can call it lip service, but you can hope that they have maybe internalized some of these values. I agree though, there is a risk that some companies are going to essentially say, well, we solved racism, we're done with this, and never think about it again, which probably is not the right move, I think we can agree.

8:09Yes. The other thing about not speaking about D &I, when you think about underrepresented communities and how it felt like for a short moment that they were finally going to be seen and valued and brought into the fold and that you might level the playing field and we're going to talk about it. It's like that one of the phrases that came out of George Floyd around that time was say their names. There was something very valuable about signaling to people by talking about it that you care about it. And so when you hear Walmart and I think Harley Davidson was the other company that said we are not going to use these words, I think that is concerning for people.

8:49That's a fair point. And on that note, let's talk about the companies that are pushing ahead that have brushed aside the backlash and said, no, we're not changing anything until we're literally forced to by the courts or the Trump administration. What are some examples of that? And what are the prospects for companies that have that mentality? Well, the example that comes to mind is Glossier, because I just reported on this recently. But in the face of a couple of things, one of the things you mentioned earlier, the Supreme Court overturning affirmative action for colleges and universities. And then And that sort of opened the floodgates for conservative groups to go after companies or investment funds that funded black and brown businesses.

9:29So with that happening, Glossier continued to move forward with its black grant program. It's a program that funds black founders and beauty, while many of its peers were sort of quieter and moving away from that. And I think the reason that it works for Glossier to take the stand that it's taking is that it's actually tied to the brand's identity and its core customers. So Glossier's whole shtick is democratizing beauty, beauty for everyone. Its customers are mostly women and its corporate board are mostly women. So it's espousing values that apply to women and that apply to minority women. So it's aligned with the brand's vision and its goals.

10:10And so it makes sense even in the face of backlash, where I think a lot of other brands just jumped on things that they didn't actually do the work of unpacking their own brand ethos and value and why they're supporting something. It seems like the move away from DEI has some things in common with the push to implement a lot of these programs back in 2020. And that's that these companies are catering to their customer base. They're reflecting what their customers want. It's probably not a coincidence that the first two prominent companies to make this move in a public way were Tractor Supply and Harley-Davidson.

10:41I think their customer base, safe to say, a little more conservative than Glossier's. And to me, the question is whether the majority of companies that are in the middle, you know, the Nikes of the world, what they're going to do. And I don't think, I mean, correct me if I'm wrong, but I don't think too many companies that kind of try to straddle the political divide have spoken up about this at all yet. An important thing about DE &I is why it's a business imperative is like there's data, right? By 2045, according to the census, the U.S. Census Bureau, the majority of the U.S. will be non-white.

11:13And so companies really have to reflect on who they're speaking to and whether they can have the broad appeal that they want to have to be profitable down the line if they don't broaden their customer base and who they include in conversations internally and externally. I think that's such an interesting point, Sheena. And the business case and why it's important to do these kind of things, I think, often gets lost in the mix. And I would add to your point about the customer base, it's also the people that work at your company who are going to be more diverse than ever before. But the other thing I think that is interesting to reflect upon is that a lot of attention has been placed on the litigation risk of having these DI initiatives in place.

11:54But equally, companies face risks of lawsuits from activist investors or class action suits from customers or former employees who feel like they've been let down by DEI promises that were not followed through on. I mean, Lululemon is facing one of these at the moment. So I think companies need, especially companies that straddle consumers on either side of the political divide, have to be thinking very carefully about the extent to which they want to be seen to be pulling back from initiatives that at least some of their consumer base, investors and employee base are going to want to still see.

12:35We'll be back with more of The Debrief right after this.

12:43so you know you had this story with the headline why the dire state of black beauty threatens the entire industry which sort of indirectly touched on what we're discussing today and it it really highlighted the value that this post 2020 push has had in the beauty industry in that this new focus by a lot of companies big beauty companies that essentially ignored black customers for decades focus on those customers has led to innovative new products and quite large thriving businesses that are going to outlast any of these political discussions. And it seems like a lot of these companies are now backing away from those investments.

13:19And there might not be a similarly robust next generation of Black founders creating these products or working internally at large beauty companies to find the next innovations. And I think there's a risk of that happening in the fashion industry as well, given the current direction that it seems to be headed. Yeah, I would agree. I think it goes back to that point of putting Dee and I in the bucket of social impact in a nice to have. This is really important for business innovation, right? Like the products that we saw come out of the natural hair care movement and the investment, albeit meager.

13:53There was an uptick in VC investment into black beauty brands, and that drove so much expansion of the category. I was talking to Tommy Talabi, who's the founder of the Black Beauty Club, and she pointed out something very important that I had not thought about, which is that the products that work on textured hair are so valuable to a broader consumer set. And so a lot of beauty companies for a long time were starting with the white customer base and then hoping to expand out. There's actually more value that companies have seen. If you start with the textured hair care market, you have broader application to more customers in the long term.

14:29The point there is that innovation is at risk, but also the inability to connect with a changing customer demographic in the future. Those are all big considerations that I think companies should keep in mind moving forward. Sarah, so much of what we've been discussing, there's some really interesting parallels in the sustainability world that you've been writing about. Why don't you walk us through what's been happening there? Yeah, I mean, it's super interesting listening to Sheena because there's a lot of parallels and obviously some differences. In a similar vein to many sort of exuberant and if you're being cynical, marketing-led commitments around DEI, the fashion industry over the last nearly a decade now has leaned into very buzzy, high-ambition-sounding commitments around sustainability, saying they're going to slash, you know, companies saying they're going to slash their emissions, They're going to completely rejig their sourcing strategies.

15:27So they use more recycled materials and organic cotton or, you know, organic cotton isn't the buzzword anymore. Now we want regenerative cotton. You know, really do things that could change, you know, if companies delivered on them would involve changing a little bit the way you operate, where you source, how you source. No one's really delivered on this. You know, the industry is way behind on its climate commitments. And what you've begun to see over the last couple of years is, in a handful of cases, a quiet reframing of commitments to make them less ambitious and in some ways more realistic, but also restructuring of sustainability teams, you know, and in some cases, quite a high number of layoffs within sustainability divisions and a restructuring of where focus is.

16:16And that's in response to a number of different things. Companies have many concerns at the moment and sustainability just seems to be moving down the agenda. So it's more apathy and inertia than a backlash here? Yes, I would say that the key drivers at the moment around the sustainability conversation are apathy and all the key challenges are apathy and inertia. But there has also been a backlash against ESG investing, so environmental social governance investing. And this was a movement that has been gaining ground really since the Paris Agreement was reached in 2015, when the UN got governments together and had them all sign a deal saying that they were going to try and cap global warming.

17:04And this really became a fulcrum for climate action. And it got investors more engaged with the idea that, you know, if they were going to invest in companies, these factors, ESG factors, and the S can encompass DEI, as well as other labor issues, were important to look at and would be a metric of financial performance. What you've seen over the last few years is a backlash against that in certain quarters, and even states suing financial advisors who have funds that index towards ESG saying that they're not doing their fiduciary duty and all they should look at is whether companies are performing financially.

17:47That is happening. It hasn't hit the fashion industry so much. It is a reality, but that's not the key driver, I think, for fashion executives and how they're thinking about sustainability right now. Although it feels like if the investor pressure to pursue sustainability goals is on the wane, and now we have a new administration that's going to be quite hostile to ESG goals generally and climate change mitigation specifically. I mean, who's left to hold fashion brands' feet to the fire? So the dynamic that I think is a little bit different for climate goals versus DEI is that most companies, even large American fashion brands, still have big markets in Europe.

18:33And in Europe, they are facing a deluge of incoming regulation focused on sustainability. And that is where they are still going to have their feet held to the fire. So even for investors who might be facing this ESG backlash, and in the same vein that you're hearing brands say, we're not going to call it DEI anymore. There are plenty of investors and people within the industry who will say, we're not going to talk about ESG anymore. We might just talk about sustainability or we might be more specific and talk about our climate goals. Fundamentally, that there are these regulations in place that means companies are going to have to do a number of things, a lot of it around disclosure rather than real action.

19:15But it does mean that from an investor standpoint, this is a compliance issue and they need companies they're investing in to be compliant with laws. Otherwise, they face significant penalties, which is obviously not good for business. Thank you, Sarah. To close things out, I always like to look ahead at what might be coming next. And I'm curious for both of your thoughts on where this is all going. I mean, we're facing, you know, four years of Trump, and it doesn't seem like any of this rhetoric from the campaign is going away. If anything, it might be escalated, at least early on in the administration, you know, where are corporate DEI efforts headed?

19:54Where is, at least in America, climate change efforts headed in the fashion industry? I think there's a couple ways it could go. On the advocacy side around DEI or ESG-related issues, I think the companies that have rooted their identity in these values and are connected with their customers, they will press forward, even if it means a language tweak here and there, the values that fundamentally drive them will persist. I think the companies that don't know who they are will be at risk when there's, as we've seen with Trump in 2016, there's going to be a lot of flashpoints in the discourse. And when consumers and internal stakeholders alike start asking you what your company stands for and you have nothing to point to, there's going to be a significant risk in your brand's future and your relevance in the future.

20:48So I think the companies that care will continue to care. Those that are confused will find themselves in potentially hot water in the next four years when these political flashpoints surface and customers and employees ask you where you stand and you have nothing to point to. I agree with Sheena. I think this is going to get a lot more complicated for companies to articulate and to navigate. And the companies that do not have a very clear understanding of that position are going to struggle to sort of answer questions from lots of different stakeholders with different points of view. I think the smart companies will get much better at articulating the business reasons why they're engaging with issues of DEI or issues of ESG, even if they use different names for those terms.

21:35And from a diversity point of view, that's the fact that your consumer base and your our employee base is going to become much more diverse. And if you're not speaking to those people, you're not going to get the best people coming to work for you and you're going to lose consumers. And from a climate perspective, it's that, you know, we've had the last two years have been the hottest ever on record. The extreme weather we've seen has caused huge economic damage already. It's only going to get worse from here if we as a collective don't try and do something about this climate disaster. And that's going to be bad for business.

22:07I think you're both spot on. And I think we've already seen an example of this in action, which is Target. Everyone always focuses on the backlash to the Bud Light campaign with the trans influencer. But Target had a similar controversy earlier this year, where there was criticism from conservatives of their pride merchandise, and they yanked quite a bit of it off of store shelves off their website in a very ham fisted way. And I think that the bigger damage to their business was not from the conservative backlash. It was from the rest of their customers saying, why are you buckling so quickly and in this borderline offensive way?

22:44And now we're seeing stories recently about how Target has really lost the thread when it comes to attracting Gen Z customers, fashion conscious customers. And it speaks to what Sheena said before, which is if you don't seem to stand for anything, then customers are going to go to the company that seems like it does have some kind of vision. Sarah, Sheena, thank you so much for joining me today. Thanks for having us, Brian. Thanks for having us. I shouldn't say that because I'm here most weeks. Thanks for always being here, Sheena. Please be sure to check out Sheena's article, Is Fashion Done with Diversity Departments?

23:19and Fashion Sustainability Reality Check from Sarah at businessoffashion.com. These and other stories are available to BOF Professional subscribers only, and you can find the links in the episode notes. You've been listening to The Debrief, produced by Olivia Davies, edited, mixed, and mastered by Eric Bria, and I'm Brian Baskin. We'll be back next week with a new episode. Thanks so much for joining us and be sure to follow us wherever you get your podcasts.