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Boards will seek to minimize their legal and regulatory risks, particularly considering that DEI and ESG programs face increased hostility.

On January 21, 2025, President Donald Trump issued Executive Order 14173¹. The main thrust of this Executive Order (“EO”) was to eliminate “illegal” Diversity, Equity, and Inclusion (“DEI”) programs across all federal agencies. Additionally, the EO called for the Attorney General and heads of all agencies to “advance in the private sector the policy of individual initiative, excellence, and hard work.”

The President called for a report within 120 days of the EO that requests all agencies outline their plan to target the “most egregious and discriminatory DEI practitioners” that are part of their jurisdictions, including targeting via civil compliance investigations, litigation, regulatory action, sub-regulatory guidance, and any other strategies possible. Each agency is required to identify up to nine civil compliance investigations of publicly traded corporations, institutions of higher education (with endowments over $1B) and foundations with assets over $500 million that will also be under scrutiny.

This executive order follows a suite of anti-ESG and anti-DEI litigation, as well as rulings, and reports coming down from governmental entities. Recent examples below.

1. Lawsuit against Vanguard, BlackRock, and State Street by multiple state attorney generals²
2. Ruling from a federal judge that American Airlines violated its legal responsibilities under ERISA in its environmentally-focused investing of employees’ 401(k) plans³ ⁴
3. The House Judiciary Committee’s report on the so-called “climate cartel” consisting of blue-state public pensions and the “Big 3” asset managers⁵

Even those programs no longer labeled as “DEI” are not safe from the reach of the Trump administration. In fact, the EO explicitly calls for steps to be taken to “deter DEI programs or principles (whether specifically denominated “DEI” or otherwise).”

Some corporate boards, wishing to minimize risk, have taken preemptive steps away from DEI, including Alphabet, Amazon, Ford, Meta, Walmart, and McDonald’s. Others, such as Costco and JPMorgan Chase, are not backing down⁶.



Asset managers, wealth managers, and asset owners must also take note of these developments: the new administration may be scrutinizing those who make their proxy voting decisions according to ESG and DEI criteria. Vanguard has already reacted to this, having recently released their proxy voting policy for the U.S. that removes previous board diversity requirements. Changes like these should be expected.

Additionally, the typical retail investor may increasingly be granted pass-through-voting power, as large institutional investors seek to take the regulatory burden off their own shoulders. Some asset managers have already begun adopting pass-through voting. This includes BlackRock’s Voting Choice program and Vanguard’s Investor Choice program. For retail investors to take advantage of this, they will need to know if their funds qualify under these programs, and if so, they will need to carefully consider their voting decisions.

Sources

[1] 2025-02097.pdf

[2] Complaint, Doc. 1- States v. BlackRock.pdf

[3] Judge rules against American Airlines's ESG investment strategy

[4] District Court Rules BlackRock’s Inclusion as 401(k) Investment Manager Breaches Company’s ERISA Duty of Loyalty

[5] New Report | Sustainability Shakedown: How a Climate Cartel of Money Managers Colluded to Take Over the Board of America's Largest Energy Company | House Judiciary Committee Republicans

[6] Which companies are rolling back DEI and which are standing firm