Between 2020 and the first half of 2024, corporations in a variety of industries adopted the language of social and environmental progress. They pledged to diversify their workforces, hired DEI professionals, denounced racial injustice, and announced plans to reduce greenhouse gas (GHG) emissions to reach net zero by 2050 (Adediran 2022, Adediran 2024). At that time, Environmental, Social, and Governance (ESG) commitments were often presented as opportunities to attract talent, respond to stakeholder pressure, and position firms for long-term sustainability.

That narrative has changed dramatically. In a new paper, I analyze 10-K annual reports for 702 publicly traded companies from 2024 and 2025. This analysis shows that hundreds of corporations have reframed DEI and ESG issues and initiatives as risk factors in their annual reports. Issues of diversity and inclusion, human rights, employee welfare, and climate change are now being discussed as financial risks. In the emerging lexicon of disclosure, DEI and ESG are not opportunities for social impact but potential sources of litigation, regulatory scrutiny, or investor backlash, all of which turn on a company’s financial goals. 

This shift from opportunity to risk underscores the continuing dominance of financial materiality in U.S. corporate law. Corporate disclosures are guided by the principle that material information is what a reasonable investor would view as significantly altering the “total mix” of information available. In general, materiality is understood to mean financial materiality, because of the assumption that shareholders are primarily concerned with profit goals. However, shareholders do care about social and environmental goals for moral or other reasons. A financial materiality standard on social and environmental issues limits the kinds of information available to shareholders and stakeholders. 

I show that risk disclosures of this type typically follow a three-part structure. First, companies identify the constituencies that could impose costs, including investors, customers, employees, regulators, the media, and government actors. In particular, the prevalence of government actors as a source of risk rose dramatically in 2025. Second, they specify activities that create exposure to risk, including sustainability commitments, diversity goals, or methodologies for achieving them. Third, they describe potential adverse consequences such as reputational harm, penalties, or litigation risk. All of these disclosures appear in the “Risk Factors” section of Form 10-K, which is designated for “material factors that make investment in a company speculative or risky….[and] designed to facilitate an understanding of a [company’s] business, financial condition, and prospects.”

This recharacterization from opportunity to risk is consequential. By presenting social and environmental issues as risk factors, firms narrow the conceptual and practical scope of these issues for shareholders and stakeholders. The language of risk signals to shareholders, employees, and regulators that these matters warrant caution, not initiative. It may also chill shareholder and employee activism, which have been important catalysts for advancing corporate responsiveness to social issues.

The question, then, is who benefits from this shift? Although these disclosures may mitigate reputational damage by demonstrating that companies are taking stock of how political shifts are affecting their prior commitments, they are unlikely to insulate firms from liability, given their contingent and forward-looking character. The more significant consequence may be political. The adoption of “risk” as a framework can strengthen efforts to challenge DEI and ESG initiatives through shareholder proposals and public campaigns and reinforce the backlash these disclosures are likely designed to manage.

My article proposes new disclosure frameworks so that shareholders and stakeholders continue to receive information on social and environmental issues beyond the narrow purview of financial materiality. Double materiality, a concept gaining traction in the European Union, would require corporations to disclose not only how social and environmental issues affect firm value but also how corporate actions affect society and the environment. Similarly, dynamic materiality acknowledges that what is financially immaterial today may become material tomorrow as markets, regulations, and shareholder and stakeholder expectations evolve. Both approaches would align disclosures more closely with the informational needs of investors and stakeholders in an economy where sustainability and equity increasingly intersect with financial performance and are likely to continue to do so.

Ultimately, reframing DEI and ESG as risk factors reflects the constraints of a disclosure regime tied exclusively to financial materiality. It may appear to protect firms in the short term but undermines shareholder and stakeholder transparency and accountability. A more forward-looking framework that captures the reciprocal relationship between corporate activity and social impact would better equip shareholders and stakeholders with information necessary to assess systemic risks and opportunities in a changing regulatory and market landscape.

This post comes to us from Professor Atinuke O. Adediran at Fordham University School of Law. It is based on her recent article, “Risky Business,” available here.