17 States Demand Answers From Ratings Giant Morningstar Over Anti-Israel Bias

Morningstar’s research arm downgrades companies that partner with the Jewish state

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August 23, 2022

Financial services firm Morningstar "may be furthering the boycott, divestment, and sanctions (BDS) movement against Israel," 17 attorneys general said in a letter sent on Tuesday and obtained by the Washington Free Beacon—and they want answers as to why the firm appears to target and downgrade companies working alongside the Jewish state to combat terrorism.

The state officials say they have "serious concerns" that Sustainalytics, Morningstar’s research arm, relies on metrics that inherently portray Israel as an aggressor in its conflict with the Palestinians, and that negatively impacts any companies working with Israel to prevent terrorism.

The attorneys general—who represent 17 states including Florida, Virginia, Ohio, Arizona, and Texas—are demanding that Morningstar provide them with in-depth information about its ratings systems by the end of the month. The letter could be a first step to launching state-level lawsuits against the firm for its alleged support for the BDS movement. The letter is addressed to Jean Paul Bradshaw, a white-collar criminal defense lawyer who is representing Morningstar in the matter.

Morningstar has been dogged by accusations it is bolstering the anti-Semitic BDS movement by downgrading companies that work with Israel’s security sector. Independent experts say this behavior constitutes a key pillar of the BDS movement and could put Morningstar in violation of state laws barring support for the BDS movement. Morningstar’s company ratings serve as a central guidepost for financial investors, and those companies that are downgraded due to their relationship with Israel are at risk of losing support from big money investors.

Morningstar has acknowledged that some of its ratings products unfairly target companies working in what it calls the "occupied Palestinian territories" and has committed to eradicating this bias. The company has canceled some ratings products already and is altering others to account for bias. Morningstar also hired an outside law firm, White & Case, to conduct a comprehensive review of Sustainalytics's practices. That report identified some areas where bias exists and recommended a series of reforms.

A spokeswoman for Morningstar told the Free Beacon the firm "does not support the anti-Israel BDS campaign" and plans to respond to the letter from the attorneys general.

"Morningstar’s effort to bring BDS in through the back door of investing has gone from a moral liability to a fiscal, reputational, and possibly legal liability. Morningstar stakeholders should demand the company immediately end its anti-Israel activity," said Christians United for Israel Action Fund chairwoman Sandra Parker. CUFI, a pro-Israel organization, is one of several outside organizations putting pressure on Morningstar to address what they see as systemic bias against the Jewish state.

The 17 attorneys general, who reviewed the White & Case report, raise multiple concerns with Sustainalytics’s practices. Sustainalytics, they write, relies on a guidance document regarding the "occupied territories," which asserts that "any business activity in that region is connected to [human rights] violations in some direct or indirect way." This standard, the officials say, unfairly targets companies working with Israel in these contested areas.

"Sustainalytics considers East Jerusalem, the West Bank, the Gaza Strip, and the Golan Heights as 'Occupied . . . Territories,'" they write. "Therefore, Sustainalytics inexplicably considers any business activity in East Jerusalem, the West Bank, the Gaza Strip, and the Golan Heights to advance human rights abuses."

Sustainalytics also places companies on a watchlist for work related to "surveillance [and] security for the checkpoints or wall." This appears to be a reference to Israel’s security barrier that stops Palestinian terrorism. "Israel has a right to secure its borders, and no company should be watchlisted for supporting Israel’s efforts to do so," the attorneys general write.

Sustainalytics may also place a company on its watchlist for "the supply of arms" to Israel, according to the letter. "It is not clear what type of arms are covered by this definition. Regardless, Israel has a right to defend itself, and no company should be watchlisted for lawfully providing resources so Israel can safeguard its citizens," they write.

Companies can also be placed on the watchlist for their involvement in "large infrastructure projects" in East Jerusalem and other Israeli neighborhoods in the city that remain disputed.

"By impeding such projects, Sustainalytics is endorsing one of BDS’s direct objectives: the removal of Jewish people from certain parts of Israel," the attorneys general write. "Furthermore, it is categorically anti-Semitic to make it more difficult for Jewish people to live in a neighborhood—one need not be a historian to understand the severe ramifications of previous attempts to confine Jewish people to particular and limited areas."

These types of ratings are also applied to other conflict zones, such as China, Myanmar, and Russia, where human rights violations routinely occur.

"Sustainalytics’s failure to draw a distinction between Israeli democracy and repressive regimes shocks our collective conscience," the attorneys general write.

Published under: Anti-Semitism , BDS , Israel