Republican Party representatives press investment firm Morningstar over allegations of anti-Israel bias

Attorneys general from 17 US states have sent a letter to the multibillion-dollar investment research firm Morningstar, expressing “serious concerns” that the company is promoting the boycott movement against Israel and demanding a response.

The Aug. 23 letter requested a written response from Morningstar by Wednesday. Morningstar requested an extension and both parties agreed to push the deadline to September 30.

The letter, addressed to Morningstar attorney Jean Paul Bradshaw II, is part of an ongoing dispute between the company, Israel advocates and Republican lawmakers. Critics say the Morningstar Sustainalytics subsidiary is biased against Israel in violation of laws banning boycotts of the Jewish state. Morningstar has repeatedly denied any support for the anti-Israel Boycott, Divestment and Sanctions (BDS) movement.

A Morningstar spokesman said 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 on Israel.

The case illustrates the growing role of corporate investment 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 plans to acquire Dutch company Sustainalytics, one of the leading firms that rates companies based on their social responsibility. Some investors are increasingly seeking such ratings for environmental, social and governance (ESG) investments.

JLens, an organization that advocates for Israel in the investment world, has raised concerns about Sustainalytics’ alleged anti-Israel bias, claiming it supports the BDS movement. JLens said the Sustainalytics Human Rights Radar product had steered investors away from Israel by improperly inflating the country’s risky and controversial ratings. The product was intended to provide investors with information on issues in the world where alleged human rights violations are taking place.

JLens said Human Rights Radar’s biased assessments amounted to an anti-Semitic boycott of Israel.

Related: A new BDS battle is emerging in the investing world, Morningstar spotlight

Morningstar denied the allegation, but after a lengthy dispute with Israeli defense attorneys, hired an outside law firm to investigate the matter. In June, Morningstar released the results of the investigation, saying it would drop Human Rights Radar after the review found it had “demonstrated bias” against Israel.

Morningstar said the White & Case law firm’s report, which it published online, found no evidence that Sustainalytics’ products advocated or promoted divestment from Israel, and there was no evidence of widespread or systemic anti-Israel bias in Sustainalytics’ products.

However, it found that the Human Rights Radar product “exhibits a bias in its results by overrepresenting firms linked to the Israeli-Palestinian conflict.”

Illustration: A BDS supporter protests the Israel Parade in New York, May 22, 2022. (Luke Tress/Times of Israel)

The report also found that Human Rights Radar “occasionally used inflammatory language and failed to provide clear and consistent source attribution.” It says the product broadly links all business conducted in Israeli “occupied territory” to human rights abuses and considers the Golan Heights, Gaza and East Jerusalem occupied.

The report said Sustainalytics came from groups highly critical of Israel, including Human Rights Watch, Amnesty International and Who Profits. Additionally, Sustainalytics is said to have used anti-Israel sources including Electronic Intifada and until 2019, when they were deemed unreliable. In 2021, Sustainalytics stopped using Iranian and Venezuelan state media.

Morningstar also admitted it had been “too dismissive” of the concerns.

As a result, Morningstar said it is dropping Human Rights Radar and will work to make Sustainalytics more transparent. The company is committed to implementing the report’s recommendations by June 2023.

Morningstar initiated the review weeks before the Illinois Investment Policy Board placed the company on its blacklist, which would have barred public pension systems from investing in Morningstar.

JLens called the report “legal acrobatics” and 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 of Israel and Israeli companies. The paper shows Sustainalytics’ ESG assessment of Israel as “low risk”, 63% of Israeli companies are rated medium or low risk, and Israel ranks as the 24th least risky country out of 169 reviewed. Two-thirds of Israeli companies showed zero involvement in any controversy, and only approximately 1 in every 1,000 firm-identified controversies in Israel was related to the Palestinian conflict. The document is dated August 23, 2022.

Despite the changes, Jewish groups and Republican government officials continued to pressure Morningstar on the issue. Last week’s letter was signed by the attorneys general of states including Texas, Florida, Ohio, Arizona and Utah.

Pro-Israel demonstrators protest Ben and Jerry’s over the West Bank boycott and anti-Semitism in Manhattan, New York, on August 12, 2021. (Luke Tress/Flash90)

Late last month, 17 senior government finance officials signed a letter to Morningstar CEO Kunal Kapur accusing Sustainalytics of ratings that are “deeply imbued with anti-Israel bias” and accusing Morningstar of “deliberately misleading” the public about the issue .

Some countries signed both letters.

And 19 state attorneys general have announced investigations into Morningstar and Sustainalytics for “alleged consumer fraud and unfair business practices” in response to allegations of anti-Israel bias.

Also last month, Arizona State 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 its use of ESG ratings does not violate the Arizona.

The effort is part of a larger campaign against ESG-led investing by Republicans. The letter to Kapoor was led by the Public Financial Officers Foundation, a Republican group that claims to advocate for free markets and opposes ESG investing, including by condemning the divestment of fossil fuel companies.

In July, also after Morningstar published its review, dozens of Jewish and pro-Israel groups signed a letter to the company demanding further action. The letter welcomed the company’s investigation, but said it revealed an entrenched bias at Sustainalytics.

Kapoor said in an official comment to the Jerusalem Post on Monday that the firm “opposes intolerance or discrimination in any form, including anti-Semitism” and “does not support the anti-Israel BDS campaign; never has and never will.”

Morningstar is a large financial services company based in Chicago. It provides investment research and management products, has more than 9,000 employees and has a market capitalization of more than $9.7 billion on the Nasdaq Stock Exchange.

Corporate investment is increasingly becoming a weapon on the Israeli-Palestinian proxy battlefield in the US. The US has pulled hundreds of millions in investment from Unilever, the parent company of Ben & Jerry’s, after the ice cream company tried to boycott Israeli ice cream sales in West Bank settlements last year.

Unilever reached a settlement 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 adopted a socially responsible image, and the case between them was an unprecedented legal battle between a major American company and its parent company. The tangled case has been a thorn in Unilever’s side, highlighting both the difficulty of mounting economic boycotts designed to isolate Israel and the pitfalls of progressive corporate activism for big business.

JTA and Times of Israel staff contributed to this report.

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