After BlackRock scraps DEI, expect continued progress but less noise amid legal uncertainty

In the laws of motion, if an unbalanced force such as friction acts on a body, it causes that body to change in speed. Within the institutional investing space, the speed at which diversity, equity and inclusion efforts will advance is in question — especially after one of the largest asset managers reverses course.

After removing references to diversity in its most recent 10-K report and changing board composition language in proxy-vote guidelines, BlackRock told employees in a Feb. 28 memo that it is ending “aspirational workforce representation” goals.

The memo — written by CEO Larry Fink, President Rob Kapito and Caroline Heller, global head of human resources — cited “significant changes to the U.S. legal and policy environment” related to DEI, including related executive orders signed by President Donald Trump.

One order signed on Jan. 20 terminated DEI programs and mandates in the federal government, and asked deputy department and agency heads to recommend actions such as employment practices and contracts in respect to the order.

The BlackRock memo added that the teams led by Nick Avery, managing director and global head of talent management, and Michelle Gadsden-Williams, managing director and global head of DEI, would merge to form the global talent and culture team. Moving forward, the firm said it will review its global practices and will adapt to the changing laws.

A spokesperson for BlackRock — which is one of the investment firms contracted to manage assets for the $954.3 billion Federal Thrift Savings Plan — declined to provide Pensions & Investments the memo, but referred to reporting by Bloomberg and Fox Business. Additionally, follow-up requests for an interview regarding DEI efforts have not been returned.

Since the start of the second Trump administration, several asset managers, consultants, endowments, foundations and industry groups have declined to discuss their organizations’ stances and efforts around DEI. At least one source has cited legal risks that their employer is still assessing.

A federal judge in Baltimore on Feb. 21 issued a preliminary injunction on provisions of the DEI-related executive orders due to free speech restrictions and “unconstitutionally vague” language that violate the First and Fifth Amendments. Sources said they expect courts to push back on the executive orders, ultimately restricting the government’s ability to tell companies how they should talk about diversity.

“Culturally, we’re just going to be in this really crappy position for a long time where companies that recognize that diversity equals performance are going to have a tough time — at least in the next couple of years — figuring out how to be attractive” to diverse talent and avoiding the crosshairs of the Trump administration, said Robert Raben, executive director and founder of the Diverse Asset Managers Initiative.

After being vocal on DEI for years, BlackRock will have difficulty walking back on those stances, Raben added. Being gay his entire adult life, the lawyer noted that “it’s very hard to go back in the closet.”

Following BlackRock’s announcement, Raben said in a Feb. 28 interview that he’s confident the firm is not going to abandon its DEI practices, but will instead be cautious about how it talks about it. Every company is different, with some names such as Johnson & Johnson and Costco Wholesale “all sort of holding the line,” he noted.

“Other companies are changing how they talk about it, or will continue to do exactly what they’re doing — and other companies who didn’t want to be doing diversity anyway see this as an exit,” Raben added. “What you’re seeing is companies actually have a conscience at the top of leadership, and they make different risk assessments.”

As an investor of other companies, BlackRock doesn’t appear to be embracing the DEI pushback based on votes on recent anti-DEI shareholder proposals at companies like Costco during the 2025 proxy season, said Andrew Behar, CEO of the shareholder advocacy group As You Sow.

“They have a fiduciary duty to make sure that their products are performing well, and so if they’re going to make decisions that will force them to intentionally underperform, that’s a breach of their fiduciary duty,” he said in a March 3 interview. “It’s something they cannot do.”

And looking inward, BlackRock’s Gadsden-Williams — who is now co-lead of global talent and culture — has indicated that the work to advance DEI will persist, even amid activist efforts pushing back on the strategy and other news on rollbacks.

In LinkedIn posts prior to the memo, she shared her thoughts on articles about the benefits of DEI. In November, she shared a Time article that highlighted analysis from the Human Rights Campaign Foundation, showing that brands stand to lose billions by retreating from their DEI strategies.

“Progress was being made. Backing away from this progress is not just short-sighted, it’s one that could severely impact the bottom line,” Gadsden-Williams wrote in a post. “Investing in inclusion builds a stronger, more resilient economy that works for everyone.”

At the New York Times’ 2017 DealBook Summit, Fink said that if companies don’t force change in recruitment and development opportunities in regard to gender, race or “just any way you want to say the composition of your team,” they will be impacted financially.

In an example, the CEO noted 55% of wallets are managed by women, so to match their needs, he said he believes that 55% of the firm’s staff have to be women.

“If we are not a mirror of who our clients are, we’re going to fail,” Fink added.

In accordance with U.K. government requirements, BlackRock has reported point-in-time gender pay gap data for all U.K. employees annually since 2017. In the same year, the firm also set a goal to have women make up 30% of its managing directors and directors globally, which was met by 2021. The firm said it intended on growing its female senior leadership globally by 3% yearly.

BlackRock has also published research on workforce diversity, including a November 2023 white paper on how investing in women enhanced financial performance.

The research found that overweighting companies that are closing gaps in women’s representation in higher ranks produced higher portfolio returns, and promoting women is associated with lower employee turnover rates.

“Other forms of diversity, such as race, ethnicity, gender identity, sexual orientation, socioeconomic or cultural background, age, national origin, personality, physical ability, or others, may be equally important in creating a diversity of thoughts, skills and perspectives, enhancing the performance of groups and organizations,” noted the paper.

Following the death of George Floyd in May 2020, Fink was among the industry executives who voiced concerns about racial injustice and inequality in the U.S.

“The George Floyd incident was a real inflection point,” Gadsden-Williams, who joined BlackRock the following September, told P&I in 2021. “Finally, some acknowledgment that disparities exist is making its way into these organizations.”

Initiatives that BlackRock has committed to since 2020 include pledging to conduct an audit of how its DEI policies impact stakeholders, and publishing annual reports meant to provide greater disclosure on its workforce diversity. The global DEI annual reports have been removed from the firm’s website as of March 5.

‘Fear and cowardice’

Amid current scrutiny from the Trump administration over contracts, DAMI’s Raben noted that BlackRock’s apparent rollback may stem from its work managing stocks and bonds for the Federal Thrift Savings Plan, which provides retirement benefits for federal workers and military members.

Alongside BlackRock, State Street Global Advisors also manages assets on behalf of the plan. The consulting firms for the plan include Aon, Callan, Meketa Investment Group, Mercer and RVK.

In its proxy-vote guidelines released the same day as the BlackRock memo, State Street dropped its recommendation for company boards to be made up of at least 30% women. Similarly, BlackRock excluded similar language in its guidelines posted in December vs. in previous years, though its report noted that more than 98% of S&P 500 companies have diverse board representation of 30% or greater, based on Institutional Shareholder Services data as of December.

Also a custodian of the $279.7 billion New York City Retirement Systems, city Comptroller Brad Lander in a Feb. 12 news conference called out large institutions such as BlackRock, Vanguard Group and ISS for rolling back their DEI programs and policies.

In light of increased attention to DEI practices particularly after the issuance of related executive orders, ISS announced in a Feb. 11 news release that the proxy advisory firm “will indefinitely halt consideration of certain diversity factors” such as race and ethnicity in its vote recommendations as of Feb. 25.

Despite these firms putting out information on how pushing for diversity has been consistent with fiduciary duties, Lander said “they are pulling back not because they have some new evidence to the contrary. They are pulling back out of fear and cowardice.”

Among some of the largest managers of alternative assets, firms such as Apollo Global Management, Ares Management and The Carlyle Group acknowledged in their most recent 10-K filings that the DEI-focused executive orders from the Trump administration posed some uncertainty for their funds and businesses. But these managers also noted that DEI is considered in their ongoing efforts to foster culture and grow talent.

Carlyle wrote in its Feb. 27 filing that the firm or its affiliates cannot “predict the ultimate impact of the foregoing on us ... or the private equity industry generally.” The firm added that it anticipates increases in regulatory investigations of its private funds, risk of exposure to litigation and scrutiny, as well as “the need for broader insurance coverage by fund managers, including us.”

Conservative groups have also played a role in the push against corporate DEI efforts in light of the 2023 U.S. Supreme Court decision to end affirmative action at higher education institutions. Legal cases that led to the ruling were filed by Edward Blum, whose American Alliance for Equal Rights was the plaintiff in the case that blocked Black-owned venture capital firm Fearless Fund from running a grant program for businesses led by women of color.

However, while the DEI pushback is coming in strong, “what we’re seeing now is not new,” DAMI’s Raben noted. “It’s just another cycle, and post-George Floyd, many leaders recognized that they were missing out on diversity and all the benefits from it.”

In a historical context, he added that “we have seen this over and over again” since the 19th century. After the Civil War, white people had attacked Black people for asserting their rights as free U.S. citizens, according to the Equal Justice Initiative.

But as conservative groups attack an effort that “became very robust,” Raben said progress on diversity will continue, but organizations will adjust their language — or not say anything at all.

“And if you hire a Black professional, you’re putting that Black professional and yourself at risk because some fool is going to say, ‘Is that a DEI thing?’” Raben added. “And that is horrible.”

If not through workplace practices, support for DEI among the largest asset managers may be apparent in how they vote on anti-ESG shareholder proposals, including those that seek to eliminate DEI practices, or reports on how such programs hinder financial or workplace performance.

During the 2024 proxy season, anti-ESG proposals garnered an average support of 2%. At the time, such proposals appeared to have reached their peak, said Michael Passoff, founder and CEO of the consulting firm Proxy Impact — but he noted that “remains to be seen” following the U.S. presidential election.

While early in the 2025 proxy season, annual meetings have already been held at companies such as Apple and Costco — both of which received anti-DEI shareholder proposals from the National Center for Public Policy Research.

At Costco’s Jan. 23 meeting, the conservative-leaning activist group asked the warehouse chain to provide a report on the “risks of maintaining DEI efforts.” The proposal cited the U.S. Supreme Court’s 2023 decision on affirmative action as well as subsequent cases where corporations were “successfully sued” for discrimination against white employees and other DEI-related commitments, according to a Dec. 11 proxy statement. The proposal received 1.7% support, according to an 8-K filing.

For Apple’s Feb. 25 meeting, the organization — also citing the affirmative action decision — requested that the technology company “consider abolishing” its efforts for inclusion and diversity, according to a Jan. 10 proxy statement. The proposal received 2.3% support, according to an 8-K filing.

Given “the unanimous consent of all shareholders that to remove DEI is detrimental to business,” Vanguard, BlackRock and State Street sided with management at both companies in voting against the proposals, noted As You Sow’s Behar.

Still in it for the long term

At the crux of every registered investment adviser’s mission is the responsibility to abide by its fiduciary duty and maximize returns for the clients they serve.

Part of the equation for ensuring this is hiring diverse talent, but for corporate America, “this has nothing to do with civil rights and social justice,” DAMI’s Raben said. Financial institutions such as BlackRock are not the business to promote civil rights, but the firm is among the major companies that have embraced DEI after recognizing that they’re “losing out on ideas, on market (and) on returns” by not being inclusive of staff of diverse backgrounds and thoughts.

But Fink has said that his company does bear some social responsibility, more so in the case of addressing environmental, social and governance factors as they affect portfolios.

The CEO wrote in his 2021 annual letter that when the company went public in 1999, “we understood that with access to more capital came greater responsibility.” A new type of transparency and discipline was required for the company to support shareholders then, and even more transparency is required now, he noted.

“The events of 2020 have brought to the forefront heightened conversations, and more important, actions by governments and companies on issues such as climate change, racial equality and economic inequality,” he added. “Major asset managers and financial institutions, including BlackRock, can make a significant impact in these areas and accelerate positive long-term developments.”

But while Fink’s statements about DEI may be under scrutiny on social media, it would not be the first time he or his firm has had to back away from a three-letter acronym due to political backlash.

In a 2023 fireside chat with David Rubenstein, co-chair of private equity firm The Carlyle Group, Fink said he has dropped using the term “ESG” since it’s been “entirely weaponized” by both progressive and conservative groups. The CEO noted his words in his annual letters “have never meant to be a political statement.”

While Fink said the current narrative around the investing concept is the “tick-tock of the day,” he noted has said “none of that matters for long-term investing like retirement.”

Long-term investing has been the fundamental foundation of all the annual letters that he has written, he added, and they “were all about long-term issues that I believe would impact positively to all the owners of our assets.”