DEI is certainly facing an turning point in corporate America right now – but how do you put a finger on the pragmatic business risks of keeping or ending DEI programs? Morningstar Sustainalytics recently wrote
“These changes have raised concerns among some investors who want to understand the potential impact on corporate ESG risks and these changes’ broader implications.”
In response, the firm issued an update/clarification on how the new DEI risk landscape impacts their ESG ratings:
“Our methodology is built to capture initiatives that are not only material to managing ESG risks, but also for which sufficient data is disclosed. This means that we tend to look for generally accepted best practices supported by international norms and standards, and we are less likely to capture aspirational or niche initiatives…
Some of the changes will have no effect on our ESG risk assessment of companies because they relate to initiatives that were never previously considered. However, we will review other changes, specifically those related to material issues. As a result, some companies may see an increase in their human capital risk scores, particularly those in sectors where human capital is highly material, such as technology firms. This could consequently lead to a few points’ increase in some companies’ overall ESG risk scores. While we anticipate the impact will be limited, even a small adjustment in a company’s ESG risk score could potentially move it into a different risk category.
… we could see more significant changes in ESG Risk Ratings if the current rollback of DEI initiatives in the US signals the start of a broader trend towards reducing efforts in other ESG areas, such as carbon emissions and climate risk reporting.”
Even though companies are struggling with what to do with – or how to rename – their DEI programs, at least Morningstar Sustainalytics ratings appear to be keeping an even keel in terms of their assessments.
Members can read more about a range of DEI programs, such as Diversity: Ethnicity & Race.
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Photo credit: Timon – stock.adobe.com
