FDD’s analysis claims to substantiate investment firm Morningstar’s anti-Israel bias

A new memo from the Foundation for Defense of Democracies (FDD), based on direct access to investment firm Morningstar’s Global Access client platform, claims the company has “negatively rated companies doing business in Israel or Israeli-controlled territories based solely on of the fact that companies do business in such areas.

Chicago-based financial services firm Morningstar reached an agreement last month with a number of American Jewish and pro-Israel organizations to take additional steps to root out anti-Israel bias in the risk assessment process used by its subsidiary Sustainalytics, a research and ratings firm. specializing in environmental, social and corporate governance (ESG) insights.

The ESG movement ostensibly places value on investing in companies with good records on social issues, but critics accuse Sustainalytics of relying heavily on blatantly anti-Israel sources and processes to develop lower ESG ratings for companies that do business in and with Israel, thereby creating a circular boycott of the Jewish state.

Morningstar has consistently denied allegations that it engages in BDS.

FDD senior adviser Richard Goldberg said that after a series of engagements with Morningstar, he was given access for several months to the company’s global access platform, which provides investors with a “dashboard that offers an overview of each company of interest.” . All Sustainalytics products are available through Global Access. Goldberg also participates in weekly dialogue sessions with Sustainalytics employees.

“The results of that engagement are documented in this analysis, and the conclusion is pretty simple, as we thought it was. It’s dead for BDS rights,” Goldberg told JNS.

He said he substantiated accusations that companies’ risk ratings are automatically downgraded because of their presence in Israel or the Israeli-controlled territories, pointing to Category 3 ratings assigned to Israeli telecommunications company Bezeq and selected Israeli banks that provide services to Jewish residents in areas of Jerusalem, Judea and Samaria designated by the UN as occupied Palestinian territories.

When asked to justify the ratings, Goldberg said Sustainalytics responded that while “there is no evidence of direct impact on human rights violations or the potential facilitation of human rights violations through customized products or services… Bezeq’s activities on The West Bank is at risk to its reputation as many companies involved in the occupied territories face boycott, divestment and sanctions campaigns from civil society groups around the world.

According to Goldberg, this thought process suggests that the very existence of the BDS campaign is a justification for damaging the company’s risk ratings, regardless of the company’s actual activities or human rights record. Goldberg noted that Chinese banks operating in Xinjiang or Chinese telecommunications companies in which the U.S. bans investment do not receive as high a risk rating.

The memo notes that Sustainalytics based a Category 3 risk rating on the holding and investment company Africa Israel Investments, based in part on a report by an avowedly pro-BDS organization criticizing the firm for helping to build a barrier between Israel and the Gaza Strip, which is controlled by terrorist groups determined to destroy Israel. Two other companies, including US-based Motorola Solutions, were put on a watch list by Sustainalytics for helping maintain the security barrier protecting Israel’s eastern border, built in the 2000s to successfully stop a wave of Palestinian suicide bombings.

“When asked why Sustainalytics did not address why the security barrier existed and whether its existence benefited human rights by saving lives, company officials insisted that their job was to focus solely on the risks and that there was a risk to human rights in this activity,” Goldberg wrote in his memo.

He told JNS that he published his analysis despite Morningstar’s October pledge to take further steps because the statement released by the company “is good in theory. But there are many potential holes. And it doesn’t come with any behavioral change.

Goldberg said all of the companies identified in his analysis as receiving high-risk ratings based solely on their operations in “occupied Palestinian territory” still have the same controversial ratings attached to them, despite Morningstar’s pledge to stop uses the term “occupied territory” in favor of geographical descriptors.

Goldberg said the company’s Oct. 31 commitment to ensure that its analysts do not suggest that the high-risk rating should be given to companies only for doing business “in the regions related to the Israeli-Palestinian conflict or related to the protection of Israel Against Terrorism’ has not yet led to any changes.

“I am of the opinion that while Joe Mansueto, the founder and chairman of Morningstar, may want to do the right thing, there are many people below him who will fight tooth and nail to stop the change from happening.” For me, BDS is rooted in the culture of Sustainalytics. These are people who don’t believe they’re doing anything wrong,” Goldberg told JNS, noting the reluctance of Sustainalytics officials to disassociate themselves from sources like the UN Human Rights Council and the pro-BDS organization Who Profits.”

Morningstar reviewed Goldberg’s findings before publication, responding that his analysis “contains numerous factual inaccuracies and misrepresents our analytical processes and conclusions. Morningstar Sustainalytics is not biased against Israel or supportive of the BDS movement, and the evidence overwhelmingly supports this. We have shared this evidence with you and other members of the engagement team in good faith.”

Morningstar did not specify to Goldberg which of his findings it considered inaccurate or misleading, and the company declined to comment further to JNS.

Notably, the FDD memo concludes by noting that “this kind of systemic bias against Israel may exist in other providers of ESG research and ratings.” Goldberg told JNS that he is looking at the ESG rating system used by New York-based financial company MSCI and is in the early stages of that process.

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