Firms follow US lead with attack on political correctness and ASX may be next

Frustration is building within parts of the Australian institutional investor community that the country’s boards are putting ESG and diversity, equity and inclusivity targets (DEI) ahead of financial performance.

US politicians are not the only ones trying to capitalise on the growing frustration with political correctness – some companies are starting to do so as well, and there’s a growing view that it won’t be long before we see a similar trend here in Australia.

It comes after Air New Zealand has just axed its ambitious carbon targets and frustration is building within parts of the Australian institutional investor community that the country’s boards are putting environmental, social and governance (ESG) and diversity, equity and inclusivity targets (DEI) ahead of financial performance.

Some US-based companies are offering investors an alternative to listed stocks that pride themselves on ticking all the DEI boxes: groups that refuse to adhere to any of the requirements on purpose.

They include agricultural machinery and heavy equipment manufacturer John Deere and Tractor Supply.

The share price of John Deere has gone from $US165 to nearly $US400 in five years.

The company says its non-profit sponsorships centre on priority areas such as hunger, economic development, poverty alleviation, science, technology, engineering and mathematics, agriculture education initiatives and support for national service members and veterans.

“Based on ongoing conversations,” the company says “we will no longer participate in or support external social or cultural awareness parades, festivals or events … auditing all company-mandated training materials and policies to ensure the absence of socially motivated messages … reaffirming within the business that the existence of diversity quotas and pronoun identification have never been and are not company policy.”

Tractor Supply, a company somewhere between Bunnings and Elders, is taking a similar stance. And some in the Australian market think it might be on to something, given that the company has a 17.5 per cent per annum total shareholder return over the past decade.

Tractor Supply has told its investors that it will no longer submit data to the Human Rights Campaign, refocus its team member engagement groups on mentoring, networking and supporting the business, further focus on rural America priorities including agriculture education, animal welfare and veteran causes, and stop sponsoring non-business activities like pride festivals and voting campaigns.

The company says it will “eliminate DEI roles and retire our current DEI goals while still ensuring a respectful environment”.

It would also “withdraw its carbon emission goals and focus on our land and water conservation efforts”.

It says it has taken such steps after listening to customers and team members.

Some fund managers in Australia are taking notice, as DEI reporting becomes more prevalent in Australia.

Australian company directors and shareholders themselves are becoming frustrated with poor performance, fearing executives or directors may be chosen for jobs for DEI reasons rather than being best suited to drive company performance, or directors and executives being distracted complying with the DEI requirements rather than running the operations profitably.

The ASX requires companies to spell out how they meet DEI requirements on their boards, and if not, why not.

There has been concern that such rules could soon become mandatory, but an ASX spokesman denies this.

Some directors and investors say the requirements are a breach of privacy, while there have been reports that some directors are being singled out in annual reports as company examples of diversity hire from a gender or LGBTQ perspective are unhappy about the move.

There have also been anecdotes where chief executives that run companies that own assets like Australian real estate have been told by directors they need policies relating to anti-slavery.