South Carolina’s treasurer on Wednesday threatened to cut the US state’s ties with the multibillion-dollar investment firm Morningstar over alleged anti-Israel bias, part of an ongoing offensive against the company by Republican officials.
Republican state leaders have repeatedly accused Morningstar of supporting the anti-Israel Boycott, Divestment and Sanctions (BDS) campaign, in violation of the law in some states, due to the conduct of one of its subsidiaries, Sustainalytics.
In response, the company has investigated anti-Israel bias at Sustainalytics, taken measures to address the issue, and repeatedly denied any support for BDS.
The Republican campaign is also tied to the party’s opposition to environmental, social and governance (ESG) guided investing, a trend in the industry the GOP believes sacrifices business interests for left-wing politics. Sustainalytics provides ESG guidance.
South Carolina Treasurer Curtis M. Loftis, Jr., in a letter to Morningstar CEO Kunal Kapoor, said the firm may be violating state laws that bar BDS support.
“We require proof that Morningstar meets the requirements of the law,” the letter said. “Absent proof of compliance, the [State Treasurer’s Office] will choose to terminate the service.”
South Carolina uses Morningstar guidance for the state’s 529 education savings plan, which has close to $6 billion in assets, Loftis said. The state also uses Morningstar’s Advisor Workstation, a financial research and planning tool.
On Thursday, Loftis said he will sit out annual rating calls with Morningstar to demonstrate “solidarity with Israel.”
“Our state does not support businesses that are involved in the boycott, divestment, or sanctions of Israel,” Loftis said.
“As such, we are unwilling to do business with Morningstar until we can be assured their decisions are based on sound financial data and investment policies, and not a radical agenda that has nothing to do with the treasurer’s fiduciary responsibility,” he said.
Loftis and South Carolina’s attorney general have both signed letters to Morningstar with other Republican officials demanding action over the alleged anti-Israel bias at the firm.
The Republican onslaught against Morningstar 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 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. 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 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, 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 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.
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.
Earlier this month Morningstar sent The Times of Israel a document showing what it said were its favorable ratings for Israel and Israeli companies and denied any support for BDS.
Despite the changes, Jewish groups and Republican state officials have continued to press Morningstar on the issue.
The attorneys general from 17 US states, including Texas, Florida, Ohio, Arizona, and Utah, sent a letter to the firm last month expressing “serious concerns” and demanding a written response. Also last month, 17 top state financial officials emailed Morningstar, accusing Sustainalytics of ratings that were “deeply infused with anti-Israel bias,” and charging the company with “intentionally misleading” the public about the issue.
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.
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.
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 $9.5 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 risks of corporate activism for large businesses.