Clifford Chance

Disagreement on U.S. DEI legislation and initiatives creates uncertainty for companies

7 February 2023

Companies are faced with increasing challenges from internal and external forces, meaning that policies and initiatives related to diversity, equity, and inclusion ("DEI") must be carefully thought out and more likely than not, a "one size fits all approach" will not work given the lack of consistency and every-changing requirements.

The consideration of environmental, social, and governance ("ESG") factors in the context of corporate America has been a focus of states, federal agencies, and companies in the last few years. Facing pressure from a myriad of sources, including voters, investors, and various other stakeholders, these entities have proposed and adopted various policies and laws meant to increase and encourage DEI within the workplace, such as diversifying board compositions and leadership positions and encouraging companies to disclosure DEI related statistics.

Such efforts, however, have not been without challenge. In the past year, a number of states enacted what can be characterized as "anti-ESG" legislation. While much attention has been focused on legislation relating to climate change, a significant number of these measures also target DEI by restricting the use of ESG factors in investments. For example, in January 2023, Mississippi proposed House Bill 818 which clearly prohibits a Mississippi retirement investment board from making "an investment decision with the primary purpose of influencing any social or environmental policy or attempting to influence the governance of any corporation." Predictably, parties from both sides have taken the battle to courts, and courts have struck down or enjoined laws meant to improve DEI as well as laws aimed at curtailing discussion about DEI within the workplace.

This varying legislation and subsequent decisions by the courts have resulted in an obvious lack of uniformity and clarity on this issue. In turn, the ensuing uncertainty may have significant ramifications for companies as they seek to follow these ever-changing requirements.

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