Another problem with ESG investing: Anti-Israel bias
The truth about environmental, social, and governance investing began coming into focus last year. A report commissioned by Chicago-based investment research firm Morningstar revealed anti-Israel bias in the ESG ratings of Sustainalytics, Morningstar’s ESG subsidiary.
Some investors had suspected as much since 2016. However, Morningstar dismissed those charges until the Illinois Investment Policy Board Committee on Israel Boycott Restrictions investigated whether Morningstar had violated Illinois’ anti-boycott, divestment, and sanctionslaw in 2021.
Last spring’s related report prompted ongoing discussions with Jewish and pro-Israel organizations starting in late July. And in October, Morningstar committed to “further fortify[ing] Sustainalytics’ ESG research and ratings against any concerns of anti-Israel bias.”
Eight months on, Elana Broitman, senior vice president for public affairs at the Jewish Federations of North America, shared, “We remain engaged because we believe the opportunity for the company to make progress remains, but we need to see concrete action to address our core issues,” which include bringing in a strong set of experts on this issue, addressing remaining biased ratings, and launching a thoughtful training program for their analysts.
Progress has been slow and uneven. For example, Morningstar eliminated the anti-Israel United Nations Human Rights Council as a source, paused the use of pro-BDS non-governmental organization Who Profits , and kept pro-BDS NGO DanWatch as a source.
Employee training is being developed, and outside experts are being considered; asked when an expert might start, a Morningstar spokesperson offered a non-responsive answer. Meanwhile, numerous changes, including rectifying various corporate ratings, reportedly hinge on an expert’s arrival.
Richard Goldberg, senior adviser at the Foundation for Defense of Democracies, commented, “28 publicly traded Israeli companies, every Israeli bank, telecom company, every major company with operations in East Jerusalem, the West Bank, and the Golan, are subject to ‘significant’ controversy — a red flag for investors — merely based on operations in what [Sustainalytics] call[s] occupied territory.”
By contrast, the Agricultural Bank of China scores only a “medium” controversy rating while operating in Xinjiang, home to Uyghur concentration camps.
“Is there one checklist for the Jewish state and one for China? If there are two checklists, congratulations, you’ve now crossed over into antisemitism,” remarked Rabbi Abraham Cooper, associate dean and director of global social action for the Simon Wiesenthal Center.
Sustainalytics’ double standard has also harmed American companies, such as Motorola Solutions. Goldberg noted Motorola Solutions was added to a de facto do not invest list for providing surveillance technology that protects Israeli civilians from terrorists; Motorola’s “significant” controversy rating also remains.
This is “backdoor BDS,” said Elan Carr, former U.S. special envoy to monitor and combat antisemitism. “Aiding and abetting BDS by channeling investment away from Israel and companies doing business with Israel, it’s a national security threat to Israel.”
Roz Rothstein, co-founder and CEO of StandWithUs , added that BDS “seek[s] to shut down Israeli-Palestinian cooperation, harm Israel’s economy, and ultimately eliminate the world’s only Jewish state.” So, while Morningstar may have “ repudiate [d]” BDS last year, the movement’s aims were already woven into Sustainalytics’ ratings.
“Ignorance is the fertile ground in which bigots, like the backers of BDS, can plant their invasive ideas,” observed a senior Christians United for Israel official. To reverse course, Morningstar needs better sources, a single standard for judging global controversies, and analyst education in international law and relevant history.
Discussions with outside groups continue, but impatience grows. With state treasurers urgedto investigate, some states already investigating, and a letter-writing campaign underway, will Morningstar complete promised changes by its June 30 deadline? And will it be independently motivated or require government prodding, as in Illinois?
We’ll know soon enough.
This article appeared in the Washington Examiner.
melissa langsam braunstein 