The retreat from DEI and ESG is a resurgence in capitalism, spurred by the conclusion of absurdly easy monetary policy.
President Trump has taken a strong stance against DEI initiatives in government and in institutions that receive federal funding. He is also seeking to roll back the Biden administration’s fondness for ESG investing, which it sought to support through federal regulation. Both of these moves are welcome reactions to progressive overreach in these spaces over the past several years.
But, as is often the case, the private sector was ahead of the government on backtracking from DEI and ESG. Though it might be tempting to give Trump’s election credit for the “vibe shift,” the shift began to happen in 2022, before Trump was even the GOP nominee and while Biden was still pushing a progressive agenda.
Russ Greene looks at the evidence on DEI in an article at the Free Press:
For example, the number of times that “DEI” or “diversity, equity, and inclusion” were mentioned in earnings calls by companies peaked in 2021’s second quarter and has fallen precipitously since then, according to AlphaSense. The Los Angeles Times reported that “spending on DEI roles” at giant companies “started to fall in 2022 as mass layoffs swept the tech industry,” citing data from Revelio Labs, which analyzes public employment records. By the end of 2023, CNBC was reporting on Big Tech’s “retreat” from DEI. Google and Meta also cut some DEI employees and programs around this time.
What about ESG?
It turns out that 2022 was also the pivot point for ESG. According to Bloomberg this January, “Since the beginning of 2022, as pandemic-era emergency measures including interest rates at crisis lows started to fade, the S&P Global Clean Energy Index has lost roughly half its value. In the same period, the S&P 500 Index rose almost 30%.”
ESG funds did the opposite of what you’d expect if you thought presidential politics was guiding decision-making:
American ESG funds saw large inflows between 2019 and 2021, minimal change in 2022, and then outflows in 2023 and 2024. This decline occurred despite a Biden administration eager to encourage sustainable investing, and despite major legislation designed to encourage a transition to “green” energy.
If it wasn’t presidential politics, what happened in 2022 that could have brought about these changes? Greene’s answer: Money stopped being free.
The Federal Reserve began hiking interest rates in March 2022. Interest rates had been near zero from the Great Recession until 2017, when the Fed began to raise rates very slowly, and then it cut them again in late 2019. By the time Covid hit, they were back near zero and stayed there until 2022.
Interest rates in the 2010s were held down by central banks around the world. An interest rate is the price of money, so a 0 percent interest rate basically means money is free. It was free, or nearly free, for the better part of the past 15 years.
Now, interest rates are at a more normal level. The near-zero rates were a historical aberration — the 4,000-year low point in interest rates, according to interest-rate historian Jim Grant — engineered by central banks conducting trillions of dollars worth of open-market operations.
Interest rates are a reflection of the simple fact that people would rather have a dollar today than a dollar a year from now, so you need to charge something to make up the difference. Holding interest rates at zero is essentially denying that fact. As usual, denying facts creates problems, and they often show up in unexpected places.
As Greene puts it: “When money is free, crazy ideas get funded. When money has a price, funders and investors want to see a direct link to value. That means ideological pet projects are the first to go.”
As a result of more responsible central-bank policy — and I stress that is a relative term — many companies are less able to afford to indulge progressive activists’ demands. When money stops being free, you have to start making money. The retreat from DEI and ESG is a resurgence in capitalism, spurred by the conclusion of absurdly easy monetary policy.