By: Berkeley Center for Law & Business Staff | April 2025
On March 18th, the Berkeley Center for Law and Business hosted a webinar exploring the State of DEI & ESG Reporting in 2025.
Moderator Stavros Gadinis, Professor of Law at UC Berkeley School of Law, panelist Melissa Hodgman, former Associate Director in the Division of Enforcement at the SEC, and panelist Erik Gerding, former Director of the Division of Corporation Finance at the SEC, shared their insights on DEI & ESG reporting.
The webinar discussed the state of DEI and ESG reporting in 2025, focusing on the impact of the Trump administration’s executive orders targeting diversity, equity, and inclusion (DEI) programs. Melissa Hodgman and Erik Gerding–partners at Freshfields and former senior officials at the SEC–joined Berkeley Law Professor Stavros Gadinis to discuss the legal risks companies face when disclosing DEI-related information in annual reports and proxy statements. They advised companies to tie DEI initiatives to business strategy and measurable outcomes and to approach disclosures through a risk-based analysis. The discussion also covered the risk of AI tools being used to flag companies, the role of board composition, and the importance of corporate governance in navigating these challenges.
The Shifting Tides
With heightened political tensions and shifting regulatory landscapes, public companies are facing intensified scrutiny over their DEI disclosures, particularly in annual reports and proxy statements. The challenge today is not only how to comply with existing legal requirements, but how to navigate a complex environment in which disclosure rules, investor expectations, and risks outside of securities laws are often in tension.
The webinar examined these dynamics, offering practical guidance on how companies can frame DEI efforts in ways that align with business strategy and withstand legal and reputational risks. Panelists emphasized the importance of distinguishing between mandatory and voluntary disclosures, identifying where and how often DEI language appears in filings, and evaluating how such disclosures may be interpreted by different stakeholders, including regulators, litigants, and politically motivated actors.
The conversation also addressed the broader implications of recent executive actions, including federal investigations into DEI practices and the potential use of AI tools to flag corporate filings. Throughout the discussion, speakers underscored the need for a risk-based, business-aligned approach to DEI that is thoughtful, defensible, and responsive to the realities of the current political and legal landscape.
Legal Issues and Risk Management
The discussion began with an overview of the administration’s actions related to DEI, including executive orders and investigations into these practices. Hodgman explained that President Trump’s executive orders targeted DEI programs in both the public and private sectors, including those aimed at ending “radical and wasteful government DEI programs and preferencing” within the government. The president also involved the Department of Justice (DOJ) in the investigations of DEI practices in the “private sector and in educational institutions that receive federal funds.” As a result, there are now many public and private actions involving DEI programs across the United States.
In the context of the current proxy season, Gerding explained that it is important for companies to assess their risk profiles carefully, especially given the growing potential for federal investigations, congressional inquiries, state attorney general actions, and private lawsuits. As he noted, it remains unclear whether DEI-related disclosures in securities filings may be used as grounds for investigations beyond the scope of federal securities laws
To navigate this uncertainty, companies should clearly distinguish between (1) disclosures required under securities laws, (2) principles-based disclosures, and (3) voluntary disclosures. Categorizing information in this way enables companies to better evaluate the legal risks related to each type of disclosure, both from a securities law perspective and from broader political or regulatory scrutiny.
International companies face additional complexity, highlighted Hodgman, as they have to manage the jurisdictional discrepancy of disclosure requirements. Foreign filers must conduct a risk-based analysis to determine what DEI-related information should be disclosed in accordance with each jurisdiction’s specific requirements.
While recent executive actions targeting DEI programs have dominated headlines, there is still a lot of scattered information and uncertainty around how corporate disclosure will affect the likelihood of companies being targeted for their policies. Notably, there is still no clear legal definition of what constitutes “unlawful DEI.” As Hodgman explained, “The category of unlawful DEI is yet to be defined, and [it’s] something that’s in the courts right now. So it’s not suggesting that all DEI is a problem.”
How Companies Should Approach Mandatory Disclosures
The panel emphasized that only a narrow set of DEI disclosures is strictly required under federal securities laws. Gerding explained that Item 407 of Regulation S-K is the only mandatory disclosure provision that explicitly references the topic. Specifically, Item 407(c)(2)(vi) requires companies to describe the nominating committee’s process for identifying and evaluating board nominees. If companies consider diversity in identifying nominees, they must explain how the policy is implemented and assessed.
The key to shielding one from liabilities, says Gerding, is to return to the basics and tie DEI efforts to the company’s strategy and bottom line. Firms should accurately describe why DEI is important to their bottom line–whether it be a compliance issue with regard to a foreign jurisdiction, a matter of retaining talent or attracting new customers, or an issue of shareholder concern, for example.
Hodgman highlights two activities that are advised against. First, a company should not withdraw all of its prior disclosure. She warned that such retractions could invite legal risk: “The SEC’s statute of limitations runs for five or ten years, so you could be facing questions if you completely remove your disclosure. Was it accurate then? Is it accurate now?”
Second, regardless of the political environment, companies should not fall on the “extreme” of the DEI spectrum, as this would expose them to complaints from all sides. Companies are better advised to adopt a measured, risk-based analysis approach to determine which disclosures are needed for the particular business.
A risk-based business strategy is a thematic throughline in sustainable and resilient business cases. In these drastically changing times and in times of uncertainty, having a risk management process (identifying, assessing, and addressing any financial, legal, strategic, and security risks) is crucial in making a roadmap through a transition.
Companies More Likely To Be Targeted for DEI Review
Gerding and Hodgman identifies three types of businesses that are likely to be targeted: a company that is a household name, companies whose annual reports or proxy statements that contain multiple key search terms related to DEI when there is not a good reason for such frequency, and companies that have been previously flagged by federal agencies with DEI issues.
Starbucks, for example, became a target of a state inquiry after disclosure patterns suggested a shift in its hiring practices. When facing litigation, Gerding said, companies must balance several concerns. The merits of the case, the costs of litigation, and the reputational damage a company suffers will all factor in the board’s consideration of how it must approach litigation.
The panel’s emphasis on visibility and language frequency raises important questions about enforcement strategy. Are high-profile companies being used as examples in a broader political effort to discredit DEI? Is this just a way for the administration to show that big business is moving away from “harmful DEI”? This further adds to the uncertainty companies face in assessing their exposure, not just from a legal perspective, but from a political and reputational one as well.
Internal Guidance and Practical Considerations
Companies must not only consider how DEI efforts are disclosed externally, but also how such programs are structured and implemented internally. Hodgman advised companies to review their DEI programs and disclosures and to consider the needs of different demographic groups and the importance of inclusivity. “If you have a St. Patrick’s Day celebration, do you have to be Irish-American to attend? Are you missing a Lebanese group?” She suggested that companies should think about expanding inclusion rather than scaling it back, framing responsiveness as an opportunity rather than a liability. “You can expand, as opposed to contract, as one way to be responsive–to make sure that everybody’s being considered and everybody’s feeling welcomed, and that their needs are in place,” she said.
Gerding recognizes the difficulty of the subject. On the one hand, companies need to balance the legal risks of their exposure. On the other hand, they need to recruit and maintain an engaged and effective workforce. Therefore, companies should carefully articulate and communicate their values and define for themselves what role DEI plays in their broader workforce and governance strategy. He noted that companies may take diverse approaches to this depending on how central DEI is to their businesses.
Gerding’s encouragement for businesses to determine which aspects of their DEI programs and strategies to retain highlights that companies can continue to pursue diversity-focused business practices, even as they adapt to a shifting legal and political environment.
Impact of AI on Disclosures and DEI Statements
The panel also addressed the growing role of artificial intelligence (AI) and automated tools in identifying DEI-related language in corporate disclosures. Such technologies can be used by regulators, political actors, or even plaintiffs’ lawyers to search for companies with a high volume of DEI-related statements. To respond to this risk, Hodgman emphasized that firms should assess the “real estate” of DEI disclosures—whether they appear early and frequently in filings, or only in isolated sections—and be able to explain their placement and purpose.
Gerding said that no advanced AI is required to identify potential DEI risks in companies’ annual reports. Rather, companies should beware of the potential “crosscurrents” issue. Whereas some red states will raise issues with companies’ DEI statements, other states might focus on the traditional question of whether there is discrimination in AI-facilitated hiring processes. Companies must tread a delicate balance under such an environment.
Board Composition and Future Strategy
The panel emphasized that conversations around board composition and the value of diverse perspectives are not new. Gerding pointed out that these aspects long predate the DEI movement and remain central to effective corporate governance. “It’s a traditional consideration to make sure that your board has those different perspectives, that your board is able to give you insights into the different markets that you operate; that’s not something new or invented within the last 10 years.”
Gerding also emphasized that discussions about diversity should be grounded in core business goals—whether related to market access, product innovation, or workforce strategy. Just as diverse boards are better equipped to navigate global markets, companies must think about how to recruit and retain a workforce capable of driving business outcomes across diverse constituencies. “Figuring out how you recruit and retain a workforce that helps you grow your business in all of the markets that you operate is a core business goal, and that’s not something that’s changed regardless of political debates.”
Hodgman reiterates that the SEC’s focus is on companies’ timely and truthful disclosures. Boards should take ownership of how DEI fits into their company’s strategic direction and ensure that disclosures reflect those judgments accurately. General counsels, she suggested, should follow court decisions to understand what “unlawful DEI” will come to mean and help businesses steer clear of litigation risks.
In the early months of the new administration, much of the public discourse was driven by the whirlwind of headline-grabbing events. Yet it is crucial to shift the focus toward understanding how courts will ultimately define what constitutes “unlawful DEI” and how legal standards around these issues will evolve. As history has taught us, there is often a discernible throughline that only becomes clear in hindsight, once the legal dust settles and short-term political noise gives way to longer-term judicial interpretation.
Regulatory Priorities and Enforcement
In addition to the SEC, other federal agencies taking cues from the White House will shift their traditional areas of focus and might also impact companies’ DEI programs. While DEI-related disclosures have not historically been central to the SEC’s mission, Gerding and Hodgman emphasized that enforcement risk may now come from outside traditional securities law frameworks. “This is not a traditional federal securities law question… There’s only one area, one rule, that explicitly mentions diversity—and this was an Obama-era rule,” Gerding said.
For instance, Hodgman discusses the potential for criminal enforcement related to DEI disclosures and the role of the DOJ. The statutory authority for such actions might stem from Section 1001 of the U.S. Code, which prohibits materially false statements to federal investigators. Nevertheless, the statutory authority for such enforcement actions remains unclear at the moment.
Despite these challenges, Hodgman emphasized that companies can manage risks and find opportunities in the current environment. Similarly, Gerding advised companies to focus on back-to-basics securities lawyering and to balance risk management with business strategies.
Risk management is one way to create a strong strategy in the legal environment. A strong business that can withstand short-term political pressure is created by limiting risk, developing into new opportunities, and staying resilient in your business strategy and values