The Rise and Fall of ESG & DEI
For the past two decades, Environmental, Social, and Governance (ESG) and its sibling Diversity, Equity, and Inclusion (DEI) have been the golden rules of corporate governance and global policy. Initially hailed as groundbreaking frameworks to address climate change, social justice, and ethical business practices, these initiatives received strong backing from global financial institutions, multinational corporations, and political elites. However, today, ESG and DEI are facing an existential crisis. Governments, businesses, and even investors are turning their backs on them, labelling them as ineffective, performative, and even destructive.
What led to this downfall? Is there a chance for revival, or is the obituary already being drafted?
Origins: How ESG & DEI Became Corporate Orthodoxy
ESG: From Ethical Investing to Market Dominance
The seeds of ESG were planted in 2004 by the UN’s Global Compact report “Who Cares Wins”, which encouraged financial institutions to integrate sustainability into investments. This led to the UN-backed Principles for Responsible Investment (PRI) in 2006, enticing firms to adopt ethical investing. By the 2010s, BlackRock, Vanguard, and State Street, controlling a significant share of global assets, pushed ESG into mainstream corporate decision-making. The logic? Companies with high ESG scores were seen as safer, long-term bets. 
DEI: A Corporate Reaction to Social Movements
While DEI principles date back to civil rights movements and affirmative action, the real explosion happened post-2020, fuelled by social justice protests and the demand for systemic change in hiring, promotions, and workplace culture. Corporations scrambled to pledge allegiance to DEI, pouring billions into hiring diversity officers, restructuring leadership, and creating race-based employment policies.
The Good, The Bad, and The Ugly: Why ESG & DEI Started Crumbling
The Good
- ESG pushed corporate responsibility for sustainable supply chains, emissions tracking, and ethical labour practices.
- DEI encouraged workplace inclusivity, attracting diverse talent pools and fostering innovation.
- Both initiatives attracted trillions in investment funds, making ethical business a financial incentive rather than just a moral one.
The Bad
- Greenwashing & woke-washing: Companies exaggerated ESG & DEI commitments while continuing exploitative practices behind the scenes.
- Regulatory overload: Businesses faced complex ESG reporting requirements, turning compliance into a bureaucratic nightmare.
- Virtue-signaling without substance: DEI policies turned into tokenism, where hiring and promotions were based on quotas instead of merit.
The Ugly
- Financial underperformance: ESG funds underperformed compared to traditional investments, leading to massive investor pullbacks.
- Boycotts & backlash: Companies like Bud Light, Disney, and Target faced public fury, resulting in billions lost due to controversial DEI-driven marketing strategies.
- Government Resistance: In the U.S., states like Florida, Texas, and West Virginia banned ESG mandates, arguing they harmed businesses and stifled economic growth.
The Slow Death: Why ESG & DEI Are Fading Away
Political & Legal Pushback
In the U.S., Republican-led states have pulled billions from ESG investment funds, accusing asset managers of prioritizing ideology over returns. Europe, once the champion of ESG, is rolling back stringent policies due to their economic impact. Even Elon Musk publicly called ESG a “scam,” further delegitimizing it. Meanwhile, DEI hiring policies have come under legal scrutiny for promoting race-based discrimination, leading to multiple lawsuits.
Investor Exodus & Corporate Retraction
The financial logic behind ESG is collapsing. Investment giants like BlackRock are scaling back ESG rhetoric after funds failed to outperform traditional portfolios. Similarly, many companies that once aggressively championed DEI are quietly dropping initiatives, fearing legal battles and financial downturns. Corporate America is now prioritizing economic survival over ideological conformity.
Public Discontent & Culture Wars
The average consumer, once neutral or even supportive of ESG and DEI, has turned skeptical. The perception that companies prioritize politics over products has fueled boycotts, and in many cases, harmed shareholder value. The narrative has shifted from “progressive capitalism” to “corporate overreach.”
Is a Revival Even Possible?
- Option 1: A Pragmatic ESG & DEI
The old ESG/DEI model is unsustainable, but a more balanced, less ideological version might work. Instead of forced compliance, companies could focus on voluntary, financially viable sustainability and inclusion policies that align with business goals. Europe and parts of Asia are already softening ESG regulations to encourage innovation rather than bureaucratic compliance. - Option 2: A Total Rebrand
Instead of “ESG” and “DEI,” new frameworks with a less politically charged image may emerge. For instance, “Responsible Business Practices” or “Sustainable Growth Initiatives” could replace ESG, making it more palatable to investors and regulators. - Option 3: A Hard Reset and Abandonment
Given the scale of backlash, ESG and DEI may simply phase out as corporations shift toward profit-driven decision-making without overt political or social commitments. The era of corporate activism may give way to a renewed focus on shareholder value.
The End of an Era?
The slow death of ESG & DEI is a reflection of a broader geopolitical and economic shift. What started as a movement for corporate responsibility and social progress has morphed into a contentious battleground of politics, finance, and public opinion. While ESG and DEI will likely evolve, their current form is unsustainable. The world is waking up to the fact that ideology-driven business models are financially and socially fragile.
The ultimate question remains: Will companies learn from these failures and adopt more practical, results-driven approaches, or will they double down and accelerate their own demise?
