From our Fan Use and Licensing Q&A:
Q: Wasn't H.P. Lovecraft a terrible racist?
A: Yes, he was. Lovecraft was a complex and troubled person in life. He was a wonderful writer with a wondrous imagination, a friend to many, and part of a corresponding group of writers (that included Robert E. Howard, Clark Ashton Smith, and others) that created the genres of horror and heroic fantasy as we know it. He also wrote things that were racist, and anti-Semitic, and probably misogynistic as well. His fear of the "Other", "infecting" the body of "old stock" definitely influenced his writing, and can be seen in things like Shadows Over Innsmouth, The Horror at Red Hook, and The Thing on the Doorstep. But these were also major anxieties of his time, shared by many others—Lovecraft's horror is many of the deep fears of the modern world (and includes the fear that not only is there no benevolent God but that the "gods" are outright malevolent and hate us). Lovecraft's cosmos is a howling abyss and none dare stare too long into it without becoming a monster.
Q: So how can we esteem or promote the works of such a terrible person?
We don't think it is possible to formulate answer to this more eloquently than the H.P. Lovecraft Historical Society has already done:
It is true that Lovecraft wrote some offensively racist things and held some very regrettably racist views. It is also true that his opinions changed over the course of his life, and the ugly things he said in his youth were somewhat mellowed by age and experience. But he's been dead a long time, and there's nothing we can do to change him. We can only recognize his flaws, and enjoy those parts of his work that do appeal to us: his fantastical imagination and worlds of ancient mystery. The HPLHS does not subscribe to Lovecraft's racial, political or sociological views, and does not support or promote them in any way.
We are in full agreement with the HPLHS (who are great folk and do amazing work—check them out!: http://www.hplhs.org). To reiterate, Chaosium and the Call of Cthulhu RPG does not subscribe to Lovecraft's racial, political or sociological views, and does not support or promote them in any way.