The attorneys general from 17 US states have sent a letter to multibillion-dollar investment research firm Morningstar expressing “serious concerns” about the company advancing the boycott movement against Israel, and demanding a response.
The letter dated August 23 demanded a written response from Morningstar by Wednesday. Morningstar requested an extension, and the two sides agreed to push the deadline to September 30.
The letter addressed to Morningstar attorney Jean Paul Bradshaw II was part of an ongoing dispute between the company, Israel advocates and Republican lawmakers. Critics say Morningstar subsidiary Sustainalytics is biased against Israel in violation of laws barring boycotts of the Jewish state. Morningstar has repeatedly denied any support for the anti-Israel Boycott, Divestment and Sanctions (BDS) movement.
A Morningstar spokesperson said on Wednesday that the company “does not support the anti-Israel BDS campaign” and provided data to The Times of Israel showing the company’s favorable ratings for Israel.
The case has illustrated the growing role of corporate investing in the Israeli-Palestinian dispute in the US, the pitfalls of progressive corporate activism and overlapping US political interests.
The battle began in 2020 when Morningstar announced its plans to acquire the Dutch company Sustainalytics, one of the leading firms that rates companies based on their social responsibility. Some investors have increasingly looked to such ratings for environmental, social and governance (ESG) guided investing.
JLens, an organization that advocates for Israel in the investing world, raised concerns over Sustainalytics’ alleged anti-Israel bias, claiming it supported the BDS movement. JLens said Sustainalytics product Human Rights Radar steered investors away from Israel by improperly inflating the country’s risk and controversy ratings. The product was meant to provide investors with information on issues in the world where alleged human rights violations take place.
JLens said Human Rights Radar’s biased ratings amounted to an antisemitic boycott of Israel.
Morningstar dismissed the accusation, but after a lengthy dispute with Israel advocates, hired an external law firm to carry out an investigation into the issue. In June, Morningstar released the results of the investigation, saying it would drop Human Rights Radar after the review found that it had “exhibited bias” against Israel.
Morningstar said the report by the White & Case law firm, which it published online, had not found evidence that Sustainalytics products recommended or encouraged divestment from Israel and there was no evidence of pervasive or systemic bias against Israel in Sustainalytics products.
However, it did find that the Human Rights Radar product “exhibited bias in its outcomes by overrepresenting firms linked to the Israeli-Palestinian conflict.”
The report also found that Human Rights Radar “sometimes used inflammatory language and failed to provide sourcing attribution clearly and consistently.” It said the product broadly tied all business conducted in Israeli “occupied territory” to human rights violations, and considered the Golan Heights, Gaza and East Jerusalem occupied.
The report said Sustainalytics sourced from groups that are highly critical of Israel including Human Rights Watch, Amnesty International and Who Profits. It also said Sustainalytics had used anti-Israel sources including Electronic Intifada and BDSMovement.net until 2019, when they were deemed unreliable. In 2021, Sustainalytics stopped using Iranian and Venezuelan state media.
Morningstar also acknowledged that it had been “overly dismissive” of concerns.
As a result, Morningstar said it was dropping Human Rights Radar and would work to make Sustainalytics more transparent. The company pledged to implement the report’s recommendations by June 2023.
Morningstar initiated the review weeks before the Illinois Investment Policy Board was set to place the company on its blacklist, which would have barred state-run pension systems from investing in Morningstar.
JLens called the report “legal acrobatics” and has kept Morningstar on its “Do Not Invest” list.
On Wednesday, Morningstar sent The Times of Israel a document showing what it said were its ratings for Israel and Israeli companies. The document showed Sustainalytics’ ESG rating for Israel as “low risk,” 63% of Israeli companies rated as medium or low risk, and Israel ranked overall as the 24th least risky country out of 169 reviewed. Two-thirds of Israeli companies showed zero involvement in any controversies, and only roughly 1 out of every 1,000 controversies identified by the firm in Israel was tied to the Palestinian conflict. The document was dated August 23, 2022.
Despite the changes, Jewish groups and Republican state officials have continued to press Morningstar on the issue. Last week’s letter was signed by the attorneys general from states including Texas, Florida, Ohio, Arizona and Utah.
Late last month, 17 top state financial officials signed a letter to Morningstar CEO Kunal Kapoor accusing Sustainalytics of ratings that were “deeply infused with anti-Israel bias,” and charging Morningstar with “intentionally misleading” the public about the issue.
Some states signed onto both letters.
And 19 state attorneys general announced an investigation into Morningstar and Sustainalytics for “alleged consumer fraud and unfair trade practices” in response to the allegations of anti-Israel bias.
Also last month, Arizona state’s treasurer Kimberly Yee said Morningstar had been identified by the state as “actively boycotting the State of Israel,” and would be blacklisted in 30 days if the company did not “prove that their usage of ESG ratings does not violate Arizona law.”
The effort is part of a larger campaign against ESG-guided investing by Republicans. The letter to Kapoor was led by the State Financial Officers Foundation, a Republican group that says it advocates for free markets and has opposed ESG investing, including by condemning the withdrawal of funds from fossil fuel companies.
In July, also after Morningstar released its review, dozens of Jewish and pro-Israel groups signed a letter to the company demanding further action. The letter commended the company’s investigation, but said it revealed entrenched bias at Sustainalytics.
Kapoor said in a Jerusalem Post op-ed on Monday that the firm “opposes intolerance or discrimination in any form, including antisemitism,” and “does not support the anti-Israel BDS campaign; it never has and it never will.”
Morningstar is a major financial services company based in Chicago. It provides investment research and management products, employs over 9,000 people and has a market cap of over $9.7 billion on the Nasdaq stock exchange.
Corporate investments have increasingly become a weapon in the Israeli-Palestinian proxy battleground in the US. States withdrew hundreds of millions in investments from Unilever, the parent company of Ben & Jerry’s, after the ice cream company attempted to boycott Israeli ice cream sales in West Bank settlements last year.
Unilever reached an agreement with Ben & Jerry’s Israel earlier this year amid mounting financial pressure, but after that deal was announced, Ben & Jerry’s sued Unilever.
Unilever and Ben & Jerry’s have both embraced a socially responsible image, and the lawsuit between them was an unprecedented legal battle between a major US company and its parent firm. The convoluted case has been a thorn in the side of Unilever, highlighting both the difficulty of enacting economic boycotts meant to isolate Israel, and the pitfalls of progressive corporate activism for large businesses.
JTA and Times of Israel staff contributed to this report.