Can We Afford DEI? The Growing Backlash and the Role of AI in Cost Management

Diversity, Equity, and Inclusion (DEI) initiatives have become deeply embedded in corporate and public sector strategies. However, as economic pressures mount, many organisations and government bodies are questioning whether DEI remains a necessary investment or has become an expensive burden that stifles growth and efficiency.

The Financial Cost of DEI in the Private and Public Sectors

Implementing DEI strategies requires significant financial investment in training, policy development, and dedicated personnel. This is particularly evident in the financial sector, where City regulators have acknowledged that their own DEI measures will impose significant costs.

• MPs recently pointed out that the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) estimate that DEI-related regulations would cost businesses a net ￡1 billion.
• The FCA predicts that the one-off cost to firms to introduce the new DEI regime will be ￡561 million, with an additional ￡317 million in annual costs.
• Meanwhile, the PRA forecasts that its DEI rules will cost the firms it regulates ￡75 million in one-off costs and ￡58 million in ongoing annual costs.

Critics argue that these mandates create unnecessary bureaucracy, diverting resources from core business activities. Many fear that DEI policies are being driven by regulatory and political pressures rather than measurable business benefits. (Source)

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City Leaders Call for DEI Rollback

Financial chiefs are urging the FCA to abandon plans for mandatory diversity targets, highlighting a growing backlash in the corporate world. Banks and investment firms argue that DEI rules will slow economic growth, with senior executives personally appealing to FCA chief executive Nikhil Rathi to reconsider the proposals.

One City leader, who directly challenged Rathi, stated:

The majority of the [finance] industry has long been unconvinced by the rationale for this. We’ve made our concerns clear for a long time and will continue to do so.?

Another industry figure warned that the FCA is at risk of imposing a burdensome reporting regime, adding:

The only certainty of its impact will be to create jobs in HR.?

This reflects a broader concern that DEI is becoming an administrative exercise rather than a meaningful driver of business improvement. (Source)

The Cost of DEI in the Public Sector: A Growing Burden?

The financial strain of DEI is not limited to the private sector. Councils across England have nearly doubled their spending on equality, diversity, and inclusion roles in just two years, according to figures compiled by the Taxpayers’ Alliance.

??Local authorities spent almost ￡23 million on DEI roles in 2022/23, compared to just over ￡12 million in 2020/21.

??This increase comes despite widespread financial difficulties in local government.

??Since 2018, eight English councils have effectively declared bankruptcy, with many more on the brink of financial collapse.

Against this backdrop, Chancellor Jeremy Hunt has urged councils to cut “discredited” diversity and equality programmes to free up funds for essential services. The question many are asking: can local authorities justify rising DEI budgets while basic public services face cuts? (Source)

Corporate America’s DEI Retreat

In the United States, a similar shift is taking place. Large corporations, including Walmart, have begun scaling back DEI initiatives, citing concerns over cost-effectiveness and diminishing returns.

As economic uncertainties persist, organisations are prioritising efficiency, profitability, and measurable business outcomes over expansive DEI commitments. This signals a growing recognition that while diversity remains an important goal, the means of achieving it must be financially sustainable. (Source)

Are DEI Targets Based on Actual Evidence?

The UK’s DEI Landscape

While DEI initiatives aim to promote fairness, a critical question remains: Are DEI targets being set based on real evidence and data, reflecting actual population sizes and social conditions?

In the UK, companies focus on key areas in their DEI efforts:

• Dedicated DEI Budgets – 72% of UK businesses allocate specific funds to DEI initiatives.
• Employee Training & Recruitment – 56% provide DEI training, while 44% focus on increasing diverse applicants.
• Leadership & Board Diversity – Women now hold 43% of boardroom positions, but ethnic minority director appointments have declined.
• Data Collection & Strategy Development – 65% of firms track workforce demographics, yet only 17% measure DEI’s business impact. (Source)

While these figures suggest active engagement in DEI, many organisations lack robust evidence linking DEI policies to tangible business benefits, raising concerns about whether DEI initiatives are truly addressing societal inequalities or simply fulfilling regulatory expectations.

How AI Can Help Regulators Acknowledge and Manage Costs

With DEI costs becoming a major point of contention, AI-driven solutions could help regulators and organisations assess the true financial impact of these policies more accurately. Here’s how AI can play a critical role:?

1. AI-Powered Cost-Benefit Analysis

AI models can evaluate the return on investment (ROI) of DEI initiatives, comparing costs against measurable outcomes such as employee retention, productivity, and market performance. Regulators could use AI-driven analytics to determine whether the financial burden of DEI mandates outweighs their benefits.

2. Predictive Analytics for DEI Impact

AI can forecast the long-term economic impact of DEI policies by analysing industry data and modelling different scenarios. This would allow businesses and policymakers to make more informed decisions, rather than implementing costly compliance measures without clear evidence of their effectiveness.

3. AI for Compliance Automation

Rather than imposing manual and costly DEI reporting requirements, AI could streamline regulatory compliance, reducing administrative overheads while still providing transparency.?

4. AI-Assisted DEI Training and Implementation

Many companies invest heavily in traditional DEI training, yet research indicates that these programmes often fail to deliver lasting behavioural change. AI-powered personalised training could enhance effectiveness and reduce costs by tailoring learning experiences to individuals, moving away from generic, one-size-fits-all approaches. Rather than operating on the assumption that employees lack inclusivity or acceptance, a data-driven, business-focused DEI model can ensure that diversity efforts align with organisational goals and measurable outcomes, making inclusion an integrated part of business success rather than an ideological mandate.

Many companies invest heavily in traditional DEI training, yet research indicates that these programmes often fail to deliver lasting behavioural change. AI-powered personalised training could enhance effectiveness and reduce costs by tailoring learning experiences to individuals, moving away from generic, one-size-fits-all approaches.

Rather than operating on the assumption that employees lack inclusivity or acceptance, AI enables a shift towards a data-driven, business-focused DEI model. By analysing workplace interactions, team dynamics, and decision-making patterns, AI can help companies identify where genuine challenges exist and implement targeted interventions. This approach ensures that DEI is integrated into everyday business operations, rather than being treated as a standalone initiative or ideological framework.

Furthermore, AI can support real-time behavioural reinforcement through adaptive learning, feedback loops, and continuous nudging. Instead of periodic workshops, employees can receive on-the-spot guidance, such as AI-driven email suggestions promoting inclusive language or analytics detecting unconscious bias in hiring decisions. This proactive approach fosters organic, long-term behavioural change, making inclusivity a natural part of workplace culture rather than an externally imposed requirement.

The Future of DEI: Reform or Rejection?

With rising economic pressures, businesses and local governments are reassessing the role and cost of DEI initiatives. While the principles of diversity and inclusion remain valuable, many are questioning whether current DEI frameworks are financially and strategically sustainable.?

Instead of eliminating DEI entirely, organisations may need to focus on targeted, evidence-based approaches that deliver measurable benefits—without creating unnecessary financial burdens.?

The Critical Question: Can We Still Afford DEI?

As companies and councils struggle to justify growing DEI expenditures, it’s clear that the era of unchecked diversity spending may be coming to an end.

AI-driven solutions could offer a smarter, more efficient way to balance DEI with financial sustainability, ensuring that organisations promote inclusivity without imposing crippling costs. However, if regulators continue to push high-cost compliance measures without clear economic benefits, the DEI backlash will only grow stronger.

The next phase of DEI will need to be driven by data, innovation, and practicality—otherwise, it risks becoming an unsustainable financial drain in an already challenging economic climate.

By aligning DEI efforts with measurable business outcomes, AI transforms inclusion from a subjective compliance metric into a strategic advantage, ensuring that diversity efforts are both financially sustainable and impactful. This not only helps companies attract and retain top talent but also improves innovation, decision-making, and overall business performance in a competitive market.

About the Author: Tess Hilson-Greener

Tess Hilson-Greener is a leading expert in AI-driven HR transformation, workforce strategy, and the future of work. With over 30 years of experience in HR, she advises organisations on integrating AI into HR functions, demystifying AI’s impact, and ensuring ethical and strategic implementation. She is the founder of AI Capability, an independent advisory service helping HR professionals stay ahead of the AI curve.

Tess is the author of HR2035, a groundbreaking book that explores the future of HR through an AI-centric operating model, redefining the role of HR in an increasingly digital and data-driven world. She is also a British Psychological Society Board Member and an Advisory Board Member for Research on Empowering Women Graduates in Data and AI.

A sought-after speaker and thought leader, Tess engages with global HR communities, industry leaders, and policymakers, offering insights into how AI can drive inclusivity, innovation, and efficiency in the workplace.