The Future of ESG and DEI

The Environmental, Social, and Governance (ESG) movement peaked under the Biden administration during the COVID-19 pandemic. Since then, the ESG framework has been receding. But it is still far from gone.

The decline of ESG ideology has been uneven across industries and sectors of society. The Trump administration has reversed ESG and DEI policies across the federal government and among federal contractors. Corporate America has largely dropped virtue-signaling diversity policies, hiring quotas, and DEI-related marketing. Even the upper echelons of Silicon Valley have distanced themselves from more strident ESG positions.

Many companies were never deeply committed to ESG. They were strong-armed by institutional investment managers like BlackRock and State Street, pressured by activists, or regulated by politicians. But now that the Trump administration has been clamping down on ESG – especially the most ideologically charged DEI programs and policies - most companies are gladly discarding ESG.

Meanwhile, DEI has been rolled back in the federal government and among tens of thousands of federal contractors via executive orders. Secretary of War Pete Hegseth has prioritized rooting out DEI and other identitarian values and programming from the military altogether. His speech to the military brass at Quantico last year highlights how the Department of War will focus on competence and lethality rather than playing ideological games.

Silicon Valley is yet a different story. The reality of needing massive amounts of energy to power the AI revolution has forced them to reckon with the red tape and anti-growth mentality of progressive ideologues and activists. While rank-and-file Silicon Valley employees may still believe in ESG and DEI, many in the upper echelons of management, entrepreneurs, founders, and venture capitalists have changed their tune. Most are appalled at the destruction of gifted programs at magnet schools, and they reject claims that standardized testing and achievement are white constructs or forms of white oppression.

Many Silicon Valley elites realized that progressive partisans and activists hate them and what they stand for. Venture capitalist Marc Andreesen has allegedly labeled many of the employees in his companies “America-hating communists.” These activists, usually children of privilege who have attended Ivy League universities, deeply resent the wealth that founders and venture capitalists have generated for others and for themselves. They realize they’ve become targets of expropriation in new and creative ways, such as with California’s proposed wealth tax.

Silicon Valley’s shift has also been particularly stark in terms of the environment. They have “re-underwritten” the value of their environmental goals and initiatives and have recognized the importance of natural gas, nuclear, and even coal in fueling the energy needs of their ever-growing large language models (LLMs) and everything built on those LLMs. While most still care about the environment and may be engaged in various carbon capture and carbon offset programs, we're not seeing commercials about appeasing Mother Nature anymore.

ESG’s reputation in Silicon Valley has also been tarnished by recent revelations of deep corruption and hypocrisy amongst some of ESG’s loudest advocates. The “effective altruism” movement, for example, was largely discredited after the fraud of one of its chief advocates, Sam Bankman-Fried, was revealed. Similarly, revelations of Jeffrey Epstein’s wide-ranging connections among top Silicon Valley CEOs ripped the mask off ESG ideology. Not only was ESG used as virtue signaling, but it was also used to hide rank hypocrisy and vice.

Despite these successes, a great deal of work remains to be done. Higher education, healthcare, state and local governments, and the nonprofit sectors, largely insulated from market competition, have mostly rebranded and disguised their ESG and DEI commitments. The story of these sectors suggests that many ESG advocates have not changed their minds, just their tactics. Though they certainly have less popular support, they haven’t given up. They are regrouping, rebranding, and rethinking how to advance their agenda in these highly protected sectors.

While explicit ESG programming and diversity initiatives in universities have declined, much of the change is superficial rather than substantive. Most DEI employees and positions remain; they’ve just been rebranded or repurposed. National Review reported that the University of Michigan experienced no significant decline in the number of employees involved in its DEI initiatives, despite the University claiming it had dropped its DEI programming.

High-profile conflicts between the Department of Education and Harvard, Columbia, and other universities reveal how deeply these institutions had bought into the ideology behind ESG, especially the DEI initiatives. Such entrenchment can be seen in higher education institutions resisting the full weight of the Supreme Court’s 2023 opinion Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, that prohibited racial discrimination in admissions. The ruling’s full consequences seem to be contested by many educational institutions maneuvering around it in their admissions decisions.

BlackRock and Larry Fink are another weathervane for ESG. Fink has completely changed his tune on ESG. BlackRock, however, has not entirely changed its priorities. They continue to push certain issue initiatives. The prevalence of ESG shareholder resolutions and their level of success have dropped precipitously due to public and political pressure from the SEC, which investigates and even prosecutes violations of fiduciary duty.

A small but vocal and energetic part of the ESG ideology is the LGBTQ movement. They have built diversity, equality, and inclusion (DEI) into an umbrella to create positions, departments, and programs focused explicitly on rewarding minority, even deviant, sexual orientations and identities. LGBTQ ideology is alive and well in blue States. Colorado has recently lost three high-profile cases at the Supreme Court: Chiles vs. Salazar (8-1 in 2026), 303 Creative LLC vs. Elenis (6-3 in 2023), and Masterpiece Cakeshop vs. Colorado Civil Rights Commission (7-2 in 2018), yet it has brought yet another case.

These DEI crusades have created huge waste and patronage. Conservative activist Chris Rufo has identified tax dollar spending on sex changes for illegal immigrants. Other investigations into fraud and abuse, much of which was justified on ESG or DEI grounds, are gaining steam.  

Much progress has been made, and the tide of public opinion has largely turned against ESG initiatives, but this shift does not yet seem deep or enduring. The biggest problem remains that a future Democratic administration could undo the Trump administration’s work entirely and reinstate the Biden administration’s policies, putting DEI and ESG everywhere in the government and in government contracting.

If Republicans lose the House and/or the Senate this fall, the rout of ESG initiatives and priorities may end. Democrats can make life difficult for the administration and slow down various agencies as they try to root out ESG across the country. Congress needs to act before then if there are going to be significant restrictions on the role of ESG and DEI in the federal government and in those with whom the federal government does business.

Though things will likely not become as radical as the Covid hysteria of 2020 and 2021, there is still plenty of institutional “muscle memory” for ESG that will make its re-emergence all too easy.

Paul Mueller is a Senior Research Fellow at the American Institute for Economic Research.