What does “diminishing” mean in this context?

「It's understandable to be cautious about terminology that might sound hierarchical or potentially offensive. While "subordinates" is technically correct, it can sometimes be perceived as diminishing. A more neutral term like "team members" or "direct reports" might be better received. For instance, you could say, "I aim to set an example for my team members" or "for my direct reports." This conveys the same meaning without emphasizing the hierarchy as strongly.」

Question

What does “diminishing” mean in this context?

「It's understandable to be cautious about terminology that might sound hierarchical or potentially offensive. While "subordinates" is technically correct, it can sometimes be perceived as diminishing. A more neutral term like "team members" or "direct reports" might be better received. For instance, you could say, "I aim to set an example for my team members" or "for my direct reports." This conveys the same meaning without emphasizing the hierarchy as strongly.」

Answer

In this context, it means "belittling." To "diminish" something can mean to reduce its (real or perceived) value, importance, dignity, authority, etc.

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if you see a nice cat you may want to show tenderness to it and say "what a kitty" -- that will be diminishing

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"making something seem small and insignificant" 
The word "subordinate" can be seen as insulting because it implies someone who has less worth than the person they work for.