In this week’s edition of Economy and Society:
- Labor Department says Citi’s racial equity program violates civil rights law
- SEC signals further retreat from climate disclosure rules
- Florida attorney general launches investigation of climate groups
- Proxy advisors sue over Texas disclosure law
- Massachusetts takes action on ESG-related bills
- ESG withdrawals continue on Wall Street as funds gain in Europe
In Washington, D.C.
Labor Department says Citi’s racial equity program violates civil rights laws
What’s the story
The Department of Labor’s Employee Benefits Security Administration (EBSA) issued an advisory opinion last week arguing Citigroup’s racial equity program violates federal civil rights laws. The program was created to cover investment management fees for minority-owned businesses. The department’s opinion reverses a 2022 advisory letter that had approved the initiative.
Why does it matter?
The new opinion signals a shift in how federal regulators interpret civil rights laws in relation to race-based corporate programs. It marks a departure from Biden-era diversity, equity, and inclusion (DEI) policies and may deter similar initiatives by other firms.
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According to HR Dive:
According to the letter, Citi’s program paid some or all of the investment management fees for “diverse managers” if retained by Citi’s employer-sponsored benefit plans, which are covered by the Employee Retirement Income Security Act. “This provides Diverse Managers with a competitive advantage, allocated on the basis of race,” wrote Jeffrey Turner, director of EBSA’s Office of Regulations and Interpretations.
“Citi further claims that its Racial Equity Program may benefit the company because certain stakeholders, such as the general public and its shareholders, might look favorably on it,” Turner noted. “This is not now, nor has it ever been, a justification for violating the law.”
The subagency pointed to the U.S. Supreme Court opinion Students for Fair Admissions v. Harvard to explain its rescission, along with Trump’s executive order and a few other court cases. Attorneys previously predicted that SFFA v. Harvard, which found the use of race in college admissions unconstitutional, could chill corporate DEI programs.
SEC signals further retreat from climate disclosure rules
What’s the story?
The Securities and Exchange Commission (SEC) reiterated in a status report last week that it will not defend or revisit the Biden-era climate disclosure rules and asked the Eighth Circuit to decide the case. The agency declined to say whether it would enforce the rules if they were upheld in court. The status report also said a majority of commissioners believe the rule exceeds the SEC’s statutory authority.
Why does it matter?
The SEC’s position reflects a broader shift away from the Biden-era climate policy, leaving the future of the disclosure rule to the courts.
What’s the background?
Click here for more on the SEC’s decision to drop its defense of the climate emissions rules.
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According to ESG Today:
The rule faced a series of legal challenges immediately following its release, with nine court petitions filed within 10 days, including a lawsuit against the rule filed by 25 Republican state attorneys general, and another appeals court motion requesting a stay of the rules led by the U.S. Chamber of Commerce. The petitions were subsequently consolidated in the Eighth Circuit court.
In its status report, the SEC “does not intend to review or reconsider the Rules at this time,” and instead “requests that the Court proceed with the litigation and decide the case.” The SEC’s report appears to give weight to the arguments of the petitioners against the rule, noting that one of the key issues in the case is the determination of whether the Commission has the statutory authority to issue the climate disclosure rules, and adding that “a majority of the current Commissioners believes that the Commission lacked statutory authority for the Rules.”
Interestingly, while the status report acknowledged that the SEC decided to drop its defense of the rules, it also noted that “many States intervened to defend the rules.”
In the states
Florida attorney general launches investigation of climate groups
What’s the story?
Florida Attorney General James Uthmeier (R) announced yesterday an investigation into two climate groups—the Climate Disclosure Project (CDP) and the Science Based Targets Initiative (SBTi)—over alleged deceptive trade practices and antitrust violations. Uthmeier argued SBTi “sells companies validation of their climate goals—then directs them back to CDP to report their progress, creating what appears to be a profit-driven feedback loop.” CDP cofounded SBTi.
Why does it matter?
The investigation is part of a broader effort by Republican officials to challenge climate group influence and rein in what they see as ESG-driven pressure on businesses.
What’s the background?
Click here to learn more about Uthmeier’s previous anti-ESG activity.
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According to Uthmeier’s office:
The CDP was founded by British ESG activists to “dematerialize economic growth” and “prevent dangerous climate change.” It runs the world’s largest environmental disclosure system, charging companies to report, revise, and promote their data—while selling services that allegedly improve scores and even offer favorable quotes from CDP executives for a price. Their scoring system is tied to corporate access to capital with investment giants such as Bloomberg, ISS, S&P Global, and Santander reportedly relying on CDP data to make financial decisions.
SBTi, co-founded by CDP and the United Nations Global Compact, sells companies validation of their climate goals—then directs them back to CDP to report their progress, creating what appears to be a profit-driven feedback loop. …
Attorney General Uthmeier’s investigation will examine deceptive trade practices such as:
- Selling services to obtain better scores and public endorsements;
- Creating incentives for corporations to pay in exchange for favorable treatment; and
- Misrepresenting the objectivity of environmental data used by investors and consumers.
The investigation will also explore potential antitrust violations, including:
- Whether coordination between CDP, financial institutions, and investment services constitutes unlawful market manipulation; and
- Whether CDP’s efforts to pressure or punish companies that don’t participate result in anticompetitive effects.
Proxy advisors sue over Texas disclosure law
What’s the story?
Institutional Shareholder Services (ISS) and Glass Lewis—the two largest proxy advisory firms—filed lawsuits against Texas last week, challenging a new law requiring disclosure when advice is based on non-financial factors like ESG or DEI.
Why does it matter?
The lawsuit raises a First Amendment challenge to Texas’s new proxy advisory law, testing whether states can require firms to flag or limit guidance on ESG and DEI issues. The outcome could affect how states regulate proxy advisors nationwide.
What’s the background?
Click here for more on Texas’s first-of-its-kind proxy advisory law, which is scheduled to take effect September 1.
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According to Reuters:
Texas’ Republican Attorney General Ken Paxton, who enforces the state’s laws and is running for U.S. Senate in 2026, is the only defendant. His office did not respond to requests for comment. ISS is short for Institutional Shareholder Services. …
Glass Lewis and ISS said the law would force proxy advisers to broadcast Texas’ preferred viewpoints when their own differed, including on hot-button issues that a Republican state legislator perceived as having a “hard left bent.”
Both advisers said they would likely lose clients and suffer reputational harm if forced to tell clients their advice is bad for them and not in shareholders’ financial interests.
Illinois takes action on ESG-related bill
One state (Illinois) took action on an ESG-related bill last week (since July 22). No bills advanced from one chamber to another, passed both chambers, or were enacted.
States with legislative activity on ESG last week are highlighted in the map below. Click here to see the details of the bill in the legislation tracker.
On Wall Street and in the private sector
ESG withdrawals continue on Wall Street as funds gain in Europe
What’s the story?
American ESG funds saw their 11th consecutive quarter of net outflows in Q2, while European investors drove global ESG fund inflows.
Why does it matter?
The divide between the U.S. and Europe on ESG is showing up in differing investor behaviors.
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According to Morningstar:
The global sustainable fund universe rebounded in the second quarter of 2025, registering net inflows of $4.9 billion. This marked a sharp reversal from the record-high restated redemptions of $11.8 billion in the first quarter. The universe comprises open-end and exchange-traded funds focused on sustainability, impact, or environmental, social, and governance factors.
European investors drove the recovery, pouring $8.6 billion of net new money into ESG funds over the past three months, after redeeming $7.3 billion in the prior quarter. …
Meanwhile, US-domiciled sustainable funds continued to bleed money for the 11th consecutive quarter, although the loss was smaller than in the previous quarter, with withdrawals of $5.7 billion in the second quarter of 2025, compared with the $6.5 billion of outflows in the first quarter.