A financial services giant builds its ratings around the premise that any entity operating in "occupied Palestinian territories" is connected to human rights violations—a standard that one foreign policy analyst says is a key pillar of the Boycott, Divestment, and Sanctions movement, which tries to gin up an economic boycott of the Jewish state.
The research arm of Morningstar Inc., a firm that advises investors and rates companies based in part on their social ethics, may designate a company as participating in human rights violations just for working in an area it calls the "occupied Palestinian territories," according to Richard Goldberg, a former U.S. national security official and Middle East expert who published an independent analysis on the matter for the Foundation for Defense of Democracies think tank.
Sustainalytics, the research arm, in its guidance documents says its "position is that in occupied territories where human rights are being systematically violated, any business activity in that region is connected to the violations in some direct or indirect way," according to a review of Morningstar's methods conducted by the law firm White & Case. This standard is also applied to other areas immersed in conflict, such as Yemen, the Western Sahara, Tibet, and the South China Sea.
Goldberg, who independently analyzed the White & Case report, said the reliance on this standard for the "occupied Palestinian territories" results in companies being downgraded just for performing work in a disputed area of Israel. He says these standards ultimately promote divestment from Israel, as companies seek to distance themselves to avoid a negative rating from the company. Ratings produced by firms like Morningstar serve as a primary guide for investors and can greatly impact a company's appeal.
Morningstar is already battling charges that Sustainalytics unfairly downgrades companies working with Israel's security and anti-terrorism sectors. Critics like Goldberg say the ratings system unfairly targets Israel's partners and ultimately bolsters the BDS movement, which wages economic warfare on the Jewish state and its allies. White & Case's review of the company's practices found some instances of bias in certain products. It recommended multiple reforms that Morningstar says it is undertaking to make its ratings products fairer to Israel. This includes altering the language in some of its ratings products and canceling others.
Sustainalytics classifies the "occupied Palestinian territories" as the West Bank, East Jerusalem, the Gaza Strip, and Golan Heights—areas that remain disputed.
"We're now getting to the deepest root of the BDS activity inside Morningstar," Goldberg said. "Every downgrade of an Israeli-connected company starts with a BDS campaign assumption that Jews have no right to live in East Jerusalem, the West Bank, and the Golan Heights. If you're a Jewish business operating near the holiest site for Jews in the world, you're an assumed human rights violator according to Morningstar."
"Just like the BDS campaign," Goldberg said, "Morningstar's premise is that companies that legitimize a Jewish presence in these areas must be investigated and harassed."
A Morningstar spokesman would not answer specific questions about the ratings practices but told the Washington Free Beacon that the company "does not support the anti-Israel BDS movement." The spokesman said the company is working with Jewish advocacy groups, including the Jewish Federations of North America, to address concerns of bias and implement the reforms included in the White & Case report.
Sustainalytics relies on research produced by nonprofit groups that critics view as anti-Israel. This includes Amnesty International and Human Rights Watch, which describe Israel as an occupying force and apartheid state. Sustainalytics also has a relationship with a group called WhoProfits, which the watchdog group NGO Monitor has flagged as "a leader" in the BDS movement.
"Sustainalytics has the system rigged against Israel-connected companies from beginning to end," said Goldberg. "You start with false anti-Israel assumptions and double standards that trigger unfair investigations, validate BDS claims with pro-BDS sources of information, and the unsurprising output is an unfair negative rating of Israel-connected companies."
Pro-Israel organizations like the Jewish Federations, an umbrella group representing pro-Israel activities across the United States, say Morningstar's ratings are more biased than the company acknowledges.
The White & Case report "makes clear that built-in bias against Israel infects Sustainalytics's methodology and sources, and thus, its other [ethical] ratings products," the Jewish group wrote in a recent letter sent to Morningstar's top executives. "Morningstar should take the opportunity to cleanse its products of all anti-Israel bias and set an example of fairness and reliability for all companies providing [ethical] ratings, which represent one-third of dollars managed globally."