As I've been building a 1920s-era Pathfinder campaign with eldritch horror undertones, I have been debating for a while what to do with Lovecraft, specifically the multifaceted bigotry that's interwoven in a lot of his work. Several events in the past couple weeks have given me some ideas on how to handle it.
Regarding Lovecraft in particular, I recently finished reading N. K. Jemisin's The City We Became. Jemisin incorporates Lovecraftian elements in the book in a way that acknowledges his racism without absolving him of it. Indeed, the way she uses it to build a character that embodies this year's apparent theme of "disappointed but not surprised" was really well done. There may be layers of nuance that I'm missing as a white person or as a non-resident of New York City, but even without those lenses to read through, it's a great book.
So what I took from her treatment of Lovecraft is that you can draw on racist sources to reflect some of the tradition of a genre, but you need to acknowledge its problematic elements, as well, in a way that does not hand-wave away the harm those problematic elements create or reflect.
Having been thinking about this for a while has also been helpful for parsing some of the recent rounds of "these authors whose books you've enjoyed are, in some way, assholes." This issue has cropped up fairly often in the past several years as people who have been harmed have been emboldened or empowered to speak up. It's part of the theme of "disappointed but not surprised" that's been going on. Since I'm just a reader and not hooked into any active writing groups, I only hear about it when it hits the news or the social media circles I'm in, so I will continued to be disappointed but not surprised when I find out someone has been causing harm in some way.
As a reader, I have to decide how I want to engage (or not) with work by authors who are, in some way, problematic. One thing I am certain of is that I won't recommend an author's work once I find out they are causing harm. I don't recommend Lovecraft unless someone is doing background reading into the history of science fiction (which is basically why I read his work - to understand references to it in other works), and I do it with warnings about the blatant bigotry. I have read plenty of other great books that I can recommend instead.
If someone is actively causing harm or an unrepentant bigot, I'm not going to read their works once I find out. For example, I loved Orson Scott Card's Ender's Shadow, but then I found out about his homophobia and stopped reading the series. If someone stops causing harm (it generally seems to be some kind of bigotry or harassment that makes the news), atones, and actively works to not do harm in the future, I would consider reading their work again, but I don't know that that happens very often. Everyone has a personal comfort level regarding redemption and forgiveness, but redemption requires atonement, and I'm not optimistic that I'll be able to pick back up a lot of the authors I have recently been disappointed by as a reader.
Another recent topic I saw come across Twitter was writing POC main characters as a white author. (I'm pretty sure I only saw tangential pieces of what was a broader conversation because, again, I'm just a reader and not hooked into any writer networks.) A lot of my early writing is, frankly, naive when it comes to issues of race, because I grew up naive about issues of race. I'm not published, so my ignorance is not hanging out there for the world to see, but the discussion has made me think about my capabilities regarding writing diverse characters, what kind of work I need to do to include them in stories without doing so in a manner that would be offensive, and the best practices for writing outside one's own experiences.
This leads me back to The City We Became; I've become someone who reads the acknowledgements section at the end of books - I don't know how, but it's only been within the past year. Seeing the extensive list of sensitivity readers Jemisin consulted for her diverse cast of characters really drove home how important that kind of feedback is when working with characters whose experiences may be different than your own. Research can only get you so far, and sources can be biased. If I want to eventually put some of my work out there, I need to put in the effort to not be someone creating harm, even if it's through ignorance.