Morningstar Hasn't Followed Through on Promise to Eradicate Anti-Israel Bias From Ratings System

Morningstar subsidiary still blacklists two companies that work with Israel to combat terrorism

Israel's security barrier May 4, 2008 (Getty images)
February 2, 2023

The financial ratings giant Morningstar has failed to follow through on promises to eradicate anti-Israel bias from its corporate ratings system and is still blacklisting companies that work with Israel.

Morningstar subsidiary Sustainalytics—which rates companies based on Environmental, Social, and Corporate (ESG) governance guidelines—placed at least two companies on its investment watchlist for their work with Israel’s security sector: Motorola Solutions and Elbit Systems, both of which provide counterterrorism surveillance technology that helps the Jewish state combat terrorism, an issue that is taking on renewed importance as Israel faces a new wave of Palestinian violence.

Sustainalytics has faced accusations that it promotes the anti-Semitic Boycott, Divestment, and Sanctions (BDS) movement, which wages economic warfare on Israel, by downgrading companies that work with Israel. Media attention on the issue, including a series of reports by the Washington Free Beacon, forced Morningstar to announce a sweeping number of reforms that it claimed would combat anti-Israel bias. But several months after this announcement, Middle East experts and former U.S. officials are concerned that Sustainalytics is penalizing companies for the work they do to prevent terrorism in Israel. Sustainalytics’s ratings serve as a guide to investors concerned about social issues, and any company placed on its watchlist can suffer as a result.

"The events of this past year confirm that Morningstar's ESG ratings subsidiary, Sustainalytics, is infected with systemic hostility to the State of Israel," Elan Carr, who served as the State Department’s special envoy for monitoring and combating anti-Semitism during the Trump administration, told the Free Beacon. "The ratings giant continues to discriminate against companies that do business in Israel by giving them heightened ‘controversy’ ratings or even worse, by placing them on ‘watchlists’ for human rights abuses."

These so-called abuses and controversies, Carr said, "consist of nothing other than providing services to residents of disputed territories or supplying Israel with life-saving anti-terrorism technologies. In attempting to drive investments away from Israel-related companies, Morningstar has joined the global BDS campaign, whose aims are to delegitimize and economically suffocate the Jewish state. There is a word for this sort of pernicious discrimination: Anti-Semitism."

While Morningstar said last year that it initiated a company-wide process to eradicate anti-Israel bias, Motorola Solutions and Elbit Systems remain on the watchlist for their work with Israel’s security sector, according to an analysis reviewed by the Free Beacon that summarized Morningstar and Sustainalystics's updated ratings.

Motorola Solutions provides counterterrorism surveillance technology to prevent terrorists from infiltrating both Israel's security barrier and Jewish communities in the West Bank. Elbit Systems provides similar counterterrorism surveillance technology for the security barrier and also makes drones that the Israeli Defense Forces use for pinpoint strikes against Palestinian terrorists.

"Morningstar says Motorola has a human rights problem because its technology is used to track Palestinian movements. What the company leaves out is that the technology is tracking the movement of Palestinian terrorists attempting to infiltrate Jewish areas, like the terrorists who murdered the Fogel family back in 2011," said Richard Goldberg, a former White House National Security Council official who serves as a senior adviser at the Foundation for Defense of Democracies think tank. "Morningstar's position is that Motorola should withdraw its operations and let terrorists stab more Jewish children to death."

Goldberg, who was one of the first analysts to expose alleged anti-Israel bias at the company, said Sustainalytics continues to bolster the BDS movement as it tries to penalize companies for working alongside Israel.

"Since we know Morningstar's watchlist is used as an explicit do-not-invest list, we know Morningstar is engaged in a clear-cut Israel boycott, which is basis enough for states with anti-BDS laws to divest and end their contracts," Goldberg said. "How many lives have been saved thanks to Motorola and Elbit providing critical counterterrorism technologies?"

A Morningstar spokeswoman would not answer Free Beacon questions about why these two companies remain flagged. "We’ve done our initial reassessment," the spokeswoman said. "Moving forward in this process depends on hiring an external expert to review our research assumptions."

The spokeswoman also directed the Free Beacon to a statement on Morningstar’s website discussing the way in which it is addressing concerns about anti-Israel bias. Information on this site claims that ESG Risk Ratings have been assigned to 140 Israel-based companies out of more than 15,000. The majority, it says, are rated "medium risk or lower." Just 0.2 percent of the companies reviewed were "flagged for involvement in an Israeli-Palestinian conflict area," according to the company.

To combat allegations of deep-seated anti-Israel prejudice at Sustainalytics, Morningstar hired an outside law firm, White & Case, to conduct an in-depth review of the company’s ratings products. That report, published in May 2022, "made recommendations to tighten processes and procedures to strengthen our objectivity, transparency, and consistency," according to Morningstar. "We’re making those changes and committed to additional actions that we believe will make our research better and strengthen its transparency, consistency, and objectivity."

White & Case came under fire in late 2022 for sponsoring events featuring speakers who advocated labeling Israel an apartheid state, the Free Beacon reported.