Organizations say financial ratings giant uses ‘ESG’ to target companies tied to Israel.
By Adam Kredo, The Washington Free Beacon
Advocacy groups are pressing state government officials to sanction financial ratings giant Morningstar for promoting divestment from companies that help the Israeli government combat Palestinian suicide bombers.
Morningstar subsidiary Sustainalytics “treats Israel differently from all other nations,” according to two pro-Israel community organizations, Christians United for Israel and the Orthodox Union. The organizations are urging the State Financial Officers Foundation, which represents officials in charge of implementing state laws against the anti-Israel Boycott, Divestment, and Sanctions (BDS) movement, to cancel lucrative contracts and investments in Morningstar.
Morningstar has been battling accusations that it fuels the BDS movement by downgrading companies that work with Israel, particularly in its security sector, making them less attractive to potential investors. The pro-Israel groups say the financial ratings giant has not made good on its promises to address those concerns and implement reforms, according to a copy of the letter obtained by the Washington Free Beacon. The Free Beacon reported in February, for example, that the company is still blacklisting several firms that help Israel combat Palestinian terrorism. Those actions, the groups say, “constitute a clear violation of state laws prohibiting contracts with and/or investment in firms that boycott Israel.”
“It’s time for Morningstar to choose boycotts of Israel or state investments and contracts,” the groups write.
The groups also want to ease concerns that Morningstar could retaliate against the states by using its ratings systems to downgrade 529 accounts, an investment portfolio used to help pay for college education.
“Given that Morningstar already uses its ratings to advance a political agenda, we recognize and respect the concern the company might retaliate against states that faithfully implement their anti-BDS laws. For instance, by downgrading the ratings of state 529 accounts,” the groups write. “Rest assured, we will urge attorneys general around the country to hold Morningstar accountable should such underhanded tactics be employed.”
Richard Goldberg, a former Illinois gubernatorial chief of staff who helped craft the state’s anti-BDS legislation, said there is “a credible fear among state officials” that going after Morningstar for its alleged support of the BDS movement “could prompt retaliation.”
“If Morningstar tried to retaliate,” he said, “that would be an issue for the Justice Department and the [Securities and Exchange Commission] to investigate.”
At least 10 major Jewish groups—including the Jewish Federations of North America and the Anti-Defamation League—informed Morningstar in late December that after months of close work with the company, they were frustrated with the lack of progress at reining in Sustainalytics’s anti-Israel bias.
Morningstar has promised to remove several companies from its do-not-invest lists and reverse policies that blacklist a company for providing services to Israel’s security sector.
“It appears that Sustainalytics is failing to do its part to implement the commitments that Morningstar made to eliminate the pervasive anti-Israel bias in Sustainalytics’s [environmental, social, and corporate governance] ratings,” the organizations wrote at the time. “We do not believe that Sustainalytics is engaging with us in the spirit of Morningstar’s October commitments and have found a number of the steps it has taken to be directly contrary to those commitments.”
Morningstar maintains it has made reforms. Information published on its website claims that ESG Risk Ratings have been assigned to 140 Israel-based companies out of more than 15,000. Just 0.2 percent of the companies reviewed were “flagged for involvement in an Israeli-Palestinian conflict area,” according to the company.
Derek Kreifels, the CEO of the State Financial Officers Foundation, said his organization will encourage its members to investigate Morningstar for potential violations of anti-BDS laws.
“Morningstar is engaging in economic warfare against the Jewish state using American retirement dollars to impose an anti-Semitic BDS movement on many companies in the name of ESG,” Kreifels said. “We look forward to the results of the continued investigation into Morningstar’s anti-Semitic activities.”