Target Faces Class Action Lawsuit for Its DEI Policy’s Risks as Investors Claim They Were Deceived

Target is facing a new class action lawsuit for its DEI (diversity, equity, and inclusion) policy, which was recently rolled back amidst backlash from activists and consumers.

Business Insider reports that the City of Riviera Beach Police Pension Fund filed a proposed class action lawsuit on Jan. 31 in Fort Myers, Florida, alleging that the company defrauded investors regarding the risks connected with its DEI and ESG activities.

The plaintiffs claimed that misrepresenting the dangers caused Target’s stock price to skyrocket between Aug. 26, 2022, and Nov. 19, 2024 (the Class Period). This also resulted in investors paying higher prices for Target shares throughout the Class Period, which eventually fell in the coming months.

Shareholders claim the retailer deceived them by unintentionally directing them to support management’s “misuse of investor funds to serve political and social goals.” The lawsuit accuses CEO Brian Cornell and other executives of failing to adequately explain the dangers of consumer boycotts due to the company’s DEI policy.

One example provided in the lawsuit was the May 2023 Pride Month campaign. According to the suit, Target did not reveal the full impact of the reaction during the campaign. The retailer was compelled to discontinue the sale of some LGBTQ-themed products in its stores due to widespread criticism at the time, and employees became concerned about their own safety as a result.

Furthermore, on Nov. 20, 2024, Target announced disappointing Q3 FY24 numbers, including lower-than-expected earnings and holiday sales guidance for the December quarter. In a single day, the company’s stock price fell 22% and its market capitalization decreased by $15.7 billion.

This poor performance contrasted sharply with rival Walmart’s thriving results. Investors blamed Target’s poor performance on the ongoing reaction to its LGBTQ marketing.

Target Rolled Back Its DEI Initiatives

Last month, in a memo to its employees, the Minneapolis-based retailer announced that it would end its three-year DEI goals, stop reporting to outside organizations focused on diversity, such as the Human Rights Campaign’s Corporate Equality Index, and discontinue a program aimed at carrying more goods from Black or minority-owned businesses.

“Many years of data, insights, listening and learning have been shaping this next chapter in our strategy,” said Kiera Fernandez, chief community impact and equity officer for Target, in the memo. “And as a retailer that serves millions of consumers every day, we understand the importance of staying in step with the evolving external landscape, now and in the future — all in service of driving Target’s growth and winning together.”

With this decision, Target joins a long list of companies that have abandoned DEI promises and aims in recent months, including Walmart, McDonald’s, Facebook’s parent company Meta, and Tractor Supply. Conservative activists lobbied some of those businesses, and some cited the Supreme Court’s decision to prohibit affirmative action in higher education, which may not have compelled them to act.