One of the world’s largest proxy advisers has warned that US companies may turn away from diversity, equity and inclusion (DEI) metrics because of political pressure—even though the issue remains important to investors.

ISS says in a paper that DEI will continue to be an important factor in executive compensation programmes, despite opposition from right-wing politicians. The proxy advisor adds more than 41% of S&P 500 companies used DEI metrics in their executive incentive schemes last year, while 61% used the broader category of ESG measures in their pay arrangements.

In an article for the Harvard Law School governance blog, Subodh Mishra, global head of communications at ISS, writes: “DEI initiatives within incentives programs may take a turn in coming years as many issuers become hesitant to use outright diversity targets.

“However, diversity, especially at the executive and board level, remains an important topic for many issuers and institutional investors, and ESG metrics in executive compensation programs appear to be resilient and likely will remain a part of executive incentives.”

Even so, Mishra warned scrutiny of DEI metrics would “intensify, both from those who are skeptical of DEI initiatives as well as those who believe they should be more rigorous.”

Fanning the flames

The extent to which DEI is under pressure from an incoming Donald Trump presidency was revealed this week when Elon Musk, one of the regime’s new efficiency chiefs, posted the baseless claim on X (formerly Twitter): “DEI means people DIE” , in relation to another post accusing the Los Angeles Fire Department of being overly concerned with diversity programmes. The comments come in the midst of LA’s biggest wildfire crisis in living memory.

Elsewhere, diversity campaigners suffered a blow when, in December, the US Court of Appeals overturned rules on Nasdaq that require listed companies to report on their boardroom diversity. The Court said regulators at the Securities and Exchange Commission had “exceeded their authority” when approving the rules in 2021.

In the past, the rules were defended by legal experts, who argued they related only to reporting and did not impose “quotas”.

Media outlets in the US have reported in recent weeks that a backlash to DEI programmes has begun across corporate America. Recruitment of minority board directors picked up significantly in the wake of the George Floyd murder and Black Lives Matter protests but have since fallen back. A study from The Conference Board, a think tank, shows appointments of Black candidates among new directors in Russell 3000 companies fell to 12% in 2024, from 26% two years previously.

USA Today reports: “Directors and board advisers said conservative backlash through litigation and other means had pushed DEI policies down the priority list for companies.”

However, there remains strong support for DEI in some quarters. Joelle Emerson, chief executive at Paradigm, an advisory firm, writes for Harvard Business Review: “While DEI the acronym may be in decline, the work itself will remain vital for organisations that want to thrive today and in the future.”

Pressure on DEI is set to increase this year as Trump takes on the presidency. Companies and boards may find themselves caught between pressure on one side from Trump in the White House, and investors and society on the other.