US investment research firm Morningstar has said it will take additional steps to address alleged anti-Israel bias in its ratings after a long pressure campaign from Jewish groups and Republican officials.
The multibillion-dollar financial services company has been repeatedly accused of prejudice in its ratings against Israeli companies, particularly through one of its subsidiaries, Sustainalytics.
Morningstar said Monday it will implement measures to remedy those concerns, after carrying out countermeasures earlier this year.
“Morningstar is committed to objectivity, transparency, and consistency across its research,” the Chicago-based company said in a statement announcing the new steps. It also reiterated its opposition to the anti-Israel Boycott, Divestment and Sanctions (BDS) movement, which is subject to legal repercussions in many states.
The new measures came after months of dialogue with leading US Jewish organizations including the Jewish Federations of North America, the Anti-Defamation League, the American Jewish Committee and the Louis D. Brandeis Center for Human Rights Under Law.
“We believe constructive criticism can make our research better. We entered the engagement process with the intention of being transparent, listening, learning, and taking appropriate action,” Morningstar CEO Kunal Kapoor said of the discussions with Jewish groups.
“These improvements, coupled with the actions we have taken to date, underscore the spirit of purpose and good faith we have brought to this dialogue,” Kapoor said.
Among the new steps, the company said Sustainalytics will make sure that its analysts do not presume human rights concerns surrounding business activities in regions linked to the Israeli-Palestinian conflict; will use neutral geographic terms, such as the “West Bank” instead of “occupied territory”; will change its approach to media sources that may be biased; will provide antisemitism training to staff; and will seek advice from independent experts on the conflict.
Sustainalytics will stop using the UN Human Rights Council and the WhoProfits research center as sources, as both have been deemed biased, Morningstar said.
Jewish groups including the JFNA, the ADL, the Brandeis Center, the American Jewish Committee, Combat Antisemitism and the Conference of Presidents applauded the announcement.
JLens, an organization that advocates for Israel in the investing world and first drew attention to the issue at Morningstar, also said it was “pleased” with the development. On Friday, Jlens said it had removed Morningstar from its “Do Not Invest” list.
“The changes are significant and substantial,” JLens said in a statement. The group warned that anti-Israel and antisemitic bias remains in the larger ESG field, however.
“We appreciate Morningstar’s engagement with our communities, as well as its leadership’s strong rejection of the Boycott, Divest, and Sanctions (BDS) campaign to discredit Israel,” said Eric Fingerhut, the head of the JFNA. “Anti-Israel bias is a pernicious problem and requires vigilance to combat.”
“We are pleased that Morningstar has made significant progress to date in resolving the many issues identified by the Jewish community and other stakeholders,” said ADL chief Jonathan Greenblatt. “Still, much remains to be done. We look forward to working with Morningstar and Sustainalytics to help with implementation and oversight of their blueprint for change.”
The controversy has focused on the Morningstar’s ratings for environmental, social and governance (ESG) guided investing, meant to allow business to consider sustainability and other factors as well as profits. Sustainalytics, a Dutch company acquired by Morningstar in 2020, is one of the leading firms that rates companies based on social responsibility.
JLens raised concerns at the time 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, amounting to an antisemitic boycott of Israel.
Morningstar dismissed the accusation, but after a lengthy dispute with pro-Israel advocates, hired an external law firm to carry out an investigation into the issue. In June, Morningstar released the results of the investigation and said it would stop using Human Rights Radar.
Morningstar said the report by the White & Case law firm 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. Sustainalytics had also sourced from groups that are highly critical of Israel.
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 has sent The Times of Israel a document showing what it said were its favorable ratings for Israel and Israeli companies.
Morningstar initiated the review weeks before the Illinois Investment Policy Board was set to place the company on its blacklist over its alleged BDS support, which would have barred state-run pension systems from investing in Morningstar, which is a publicly traded company.
After Jewish groups drew attention to the issue, Republican officials also began to hammer Morningstar over its alleged anti-Israel bias. Some GOP members believe ESG-guided investing sacrifices business interests for left-wing politics. Support for Israel is also a cause célèbre for some Republican lawmakers.
A host of Republican state officials, including attorneys general and top financial officials, have issued formal letters accusing Morningstar of bias, “intentionally misleading” the public and “alleged consumer fraud and unfair trade practices.”
Arizona State Treasurer Kimberly Yee, who is up for re-election Tuesday, said Monday that her office will continue to investigate Morningstar for BDS violations despite the new announcement.
“While I’m pleased Morningstar is taking steps to alter its risk ratings for companies doing business in Israel, my office has not concluded our internal investigation. I’ll continue to put pressure on Morningstar and denounce any company discriminating against the people of Israel,” Yee said.
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 maker attempted to prevent its Israeli licensee from selling its products 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 risks of corporate activism for large businesses.