The Future of DEI and ESG in a Hostile Political Environment
The Business of Fashion Podcast
Release Date: December 10, 2024

Introduction

In the December 10, 2024 episode of The Business of Fashion Podcast, host Brian Baskin explores the evolving landscape of Diversity, Equity, and Inclusion (DEI) as well as Environmental, Social, and Governance (ESG) initiatives within the fashion industry amidst a challenging political climate. The discussion features insights from Sheena Butler Young, senior correspondent covering workplace and talent, and Sarah Kent, chief sustainability correspondent.

Retreat of DEI Initiatives in the Fashion Industry

Walmart's DEI Rollback
At the outset, Baskin highlights Walmart's significant decision to scale back its DEI programs—a move seen as indicative of broader industry trends. In a detailed breakdown, Sarah Kent explains:

• Termination of DEI Priorities: Walmart is discontinuing prioritizing suppliers based on race and gender, which had previously ensured a diverse supplier base.
• Product Line Adjustments: The company is removing certain transgender products from its online marketplace.
• Funding Cuts: Walmart will not renew its five-year commitment to the Center for Racial Equity, a nonprofit established in 2020 to combat systemic racism.
• Withdrawal from LGBTQ+ Benchmarking: The retailer is also exiting the Human Rights Campaign Corporate Equality Index, which assesses LGBTQ+ workplace policies.

Sarah underscores Walmart's influence: "Walmart is the largest private employer in the US 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." (02:03)

Politicization of DEI
Sarah articulates the crux of the issue: "The term DEI has become so politicized, it's like following the trajectory of 'woke.' Something that started off with good intentions and valuable principles has become almost derogatory." (03:28)

Brian and Sarah delve into the inherent simplicity of DEI's core values—diversity, equity, and inclusion—highlighting how their politicization has muddled their original intent. Sarah elaborates:

• Basic Values Lost in Politics: "Diversity is like biodiversity in the ocean. It just exists. Inclusion is about who wants to be left out. Equity means you want to be treated fairly." (04:37)
• Tenuous Foundations: DEI initiatives in fashion emerged post-George Floyd's murder, creating a shaky foundation that struggled to withstand political and corporate pressures.

Challenges and Risks of Moving Beyond DEI

Performative vs. Substantive Actions
The conversation shifts to the effectiveness of DEI efforts. Sarah critiques the initial, reactive formation of DEI departments:

• Hasty Formation: "These departments were formed in haste. They were reactionary, emotional responses to unprecedented events." (05:01)
• Lack of Depth: Companies failed to transition from emotional support to integrating DEI as a core business imperative, leading to performative actions rather than meaningful change.

Implications of Dropping DEI Terminology
Brian questions the sustainability of DEI values without formal structures:

• Walmart's Stated Intentions: Despite dropping DEI, Walmart asserts a commitment to fostering belonging and opening doors for all stakeholders. However, Sarah warns:

  • Risk of Inaction: "A lot of companies are saying they’re moving beyond calling the thing they're doing the thing and doing the work, but often they're doing neither." (07:45)
  • Loss of Visibility: The act of openly discussing DEI signaled to underrepresented communities that companies cared about their inclusion. Without this, companies risk appearing indifferent.

Companies Upholding DEI Amid Backlash

Glossier as a Case Study
Contrasting Walmart's retreat, Sarah highlights Glossier's steadfast commitment to DEI:

• Continued Support: Glossier maintains its black grant program supporting black founders in beauty, defying industry-wide pullbacks.
• Brand Alignment: "Glossier's whole shtick is democratizing beauty, beauty for everyone... it's aligned with the brand's vision and its goals." (09:08)
• Customer and Identity Integration: The company's DEI efforts are intrinsically tied to its identity and customer base, making its stance more resilient against backlash.

The Business Imperative of DEI and Sustainability

Demographic Shifts and Market Relevance
Sheena Butler Young emphasizes the business necessity of DEI:

• Changing Demographics: "By 2045... the majority of the U.S. population will be more diverse. Companies need to reflect who they're speaking to." (11:00)
• Talent Acquisition: A diverse workforce attracts the best talent and fosters innovation.
• Litigation Risks: Companies face potential lawsuits from dissatisfied stakeholders if they retract DEI commitments, as seen with Lululemon's current challenges. (11:26)

Sustainability Efforts and ESG Backlash

Failure to Meet Sustainability Goals
Sarah Kent draws parallels between DEI and ESG initiatives, noting a similar trend of retreat and underperformance:

• Unmet Commitments: "The fashion industry is way behind on its climate commitments." (16:36)
• Restructuring Efforts: There has been a restructuring of sustainability teams, including layoffs, indicating a deprioritization of these initiatives.

ESG Investing Backlash
The conversation touches on the growing resistance to ESG:

• Regulatory Pressures: European regulations continue to enforce sustainability standards, compelling companies to comply despite domestic political hostility.
• Investor Compliance: "There are these regulations in place, that means companies are going to have to do a number of things... otherwise they face significant penalties." (20:02)

Future Outlook

Navigating Political Challenges
Looking ahead, both Sheena and Sarah discuss the potential paths corporations might take:

• Rooted Values vs. Confusion: Companies with strong, value-driven identities will likely persist in their DEI and sustainability efforts, whereas those without clear stances risk losing relevance and facing internal and external criticism. (21:42)
• Brand Reputation: Missteps, such as Target's mishandling of Pride merchandise, can damage relationships with key consumer groups, particularly Gen Z. "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." (23:51)

Strategic Articulation of Values
Sheena underscores the importance of clearly articulating the business reasons behind DEI and sustainability initiatives:

• Consumer and Employee Expectations: "Your consumer base and your employee base is going to become much more diverse... and climate extremes will continue to impact economic stability." (22:47)
• Business Viability: Aligning DEI and sustainability with core business strategies ensures long-term viability and relevance in a shifting market landscape.

Conclusion

The episode underscores a critical juncture for the fashion industry, where DEI and ESG initiatives are being reevaluated amidst political and economic pressures. While some companies retract their commitments, others like Glossier demonstrate that aligning these values with brand identity and customer expectations can sustain and even strengthen their market position. The discussion highlights the necessity for clear, value-driven strategies that transcend political rhetoric, ensuring that DEI and sustainability remain integral to business success in an increasingly diverse and environmentally conscious world.

Notable Quotes:

• Sarah Kent on DEI politicization:
  "The term DEI has become so politicized, it's like following the trajectory of 'woke'." (03:28)

• Sheena Butler Young on litigation risks:
  "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 we're not followed through on." (11:26)

• Sheena on business alignment:
  "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." (22:47)

Further Reading:

• Sheena Butler Young's article: Is Fashion Done with Diversity Departments and Fashion Sustainability? available to BOF Professional subscribers.

This summary captures the essential discussions and insights from The Future of DEI and ESG in a Hostile Political Environment episode. For more in-depth analysis, consider subscribing to BOF Professional.