Chicago Financial Firm Removes Over 100 Negative ESG Ratings for Israel Linked Companies

Morningstar, Inc., a Chicago-based investment firm managing over $250 billion in assets, has removed 109 negative “controversy ratings” that its Sustainalytics subsidiary had given companies operating in Israel as part of its effort to promote investment guided by environmental, social, governmental (ESG) principles.

“After months of negotiations and discussions with Morningstar about its assumptions, sources, and language, we appreciate that a significant number of companies unfairly rated for their work with Israel have had these black marks lifted,” Elana Broitman, senior vice president of Jewish Federations of North America, which pressured the firm to stop the practice, said in a statement shared with The Algemeiner on Friday.

Broitman added, “Our work is not yet done, however, and we look forward to further progress and Morningstar’s selection of experts to advise on these matters.”

The firm’s removal of the controversy ratings for the companies builds on policy changes it instituted last year after being accused of supporting the boycott, divestment, and sanctions (BDS) and placing Israeli companies and those linked to Israel on a “watchlist.” In 2021, JLens, a group that offers financial advice to Jewish investors and was incorporated by the Anti-Defamation League (ADL) last November, reviewed Sustainalytics’ practices and alleged that the firm had used “BDS blacklists” and described Israeli companies with “politicized anti-Israel language” in its reports.

JLens was the first organization to elicit attention to the issue and prompted Morningstar’s cracking down on the practices and adopting policies ensuring that Sustainalytics would not become a BDS collaborator.

Morningstar has repeatedly denied that it ever supported BDS. Last June, Morningstar CEO Kunal Kapoor issued a statement arguing that an external  review of Sustainalytics found no evidence that it “encouraged divestment from Israel” but acknowledged that at least one of its departments singled out businesses “linked to the Israeli-Palestinian conflict” and “sometimes used inflammatory language and failed to provide sourcing attribution clearly and consistently.”

That month, a spokesperson for Morningstar sent the The Algemeiner a document which it claimed shows that Israeli companies receive mostly positive ratings from Sustainalytics and that only a minority — 519 out of over 30,000 reviewed — have been placed on a “watchlist” or designated as “non-compliant.”

Last October, Morningstar announced that Sustainalytics will issue guidance clarifying that business activity “linked to the Israeli-Palestinian conflict or related to Israel’s defense, against terrorism, do not give rise to a presumption that there is a human rights concern.” It will also no longer refer to the West Bank and East Jerusalem as ‘Occupied Palestinian Territory’ or ‘occupied territory” and committed to educating its employees about antisemitism and procuring information about the Israeli-Palestinian conflict from “independent, recognized experts.”

ADL has noted that BDS activists target firms managing ESG rated funds, which attracted over $500 billion in investments in 2021, a 55% increase from the previous year, according to JP Morgan. During 2022’s proxy season, a time when publicly traded companies hold annual meetings to assess performance and weigh suggestions from shareholders, Israel was named in eight of 20 resolutions targeting foreign governments, “making the country only second to China.”

Follow Dion J. Pierre @DionJPierre.

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