Understanding the Impact of Federal DEI Policy Changes on Nonprofits

Understanding the Impact of Federal DEI Policy Changes on Nonprofits

According to an article by Pillsbury Winthrop Shaw Pittman, the recent executive orders issued by President Trump dismantling federal Diversity, Equity, and Inclusion (DEI) initiatives have created a rapidly evolving legal and regulatory landscape. These changes affect federal funding, contractor obligations, and regulatory scrutiny, with significant implications for nonprofit organizations engaged in DEI-related work. Nonprofits receiving federal grants or contracts or advocating for race or gender inclusivity must carefully assess the risks these DEI policy shifts present.

The article says that eliminating federal DEI mandates may lead to funding cuts, increased scrutiny, and shifting grant eligibility criteria. Nonprofits previously engaged in government DEI initiatives should expect heightened legal and regulatory challenges, particularly regarding affirmative action requirements and race- or gender-based programming. 

The rescission of Executive Order 11246 removes affirmative action obligations for federal contractors, requiring affected nonprofits to reassess compliance with remaining state and local laws. Meanwhile, federal agencies have signaled a stronger focus on investigating what they consider “illegal” DEI preferences, though the scope remains uncertain.

To navigate this environment, the article suggests nonprofits should proactively review legal and financial protections. Insurance coverage plays a key role in mitigating risks. Directors and Officers (D&O) liability insurance can safeguard nonprofit leadership against claims related to DEI policy changes. 

At the same time, Employment Practices Liability Insurance (EPLI) can address discrimination claims stemming from DEI training or hiring practices. Other policies, including Commercial General Liability and Professional Liability insurance, should also be evaluated to ensure adequate protection against evolving risks.

By working closely with legal counsel and insurance advisors, nonprofits can develop a risk-informed strategy that upholds their mission while ensuring compliance and financial stability in the face of regulatory uncertainty.