Morningstar Inc Now Global BDS Enforcers
Morningstar Inc provides a mask for corporate anti-Israel activists through its ESG investment recommendations. Now lawsuits in states with anti-BDS legislation are calling them to account.
Nineteen states are calling for financial giant Morningstar Inc to answer for their ESG (Environmental, Social and Governance) investment policies. They are alleging that the financial services giant is violating state anti-BDS laws.
In addition, the attorney general in Missouri, Eric Schmitt, who initiated the probe, is also investigating whether the company’s ESG policies constitute “consumer fraud or unfair trade practices.”
ESG investment is a rating system that incorporates social justice issues into investment decisions. In theory, it is a tool to help businesses take into account ethical considerations when making their financial decisions. In practice, as explained by David May of the Foundations for Defense of Democracies (FDD),
“The [ESG] industry’s subjective standards have allowed anti-Israel activists to impose their agenda on unwitting investors. Former US State Department special envoy for monitoring and combating antisemitism Elan Carr has called [ESG investment] ‘BDS dressed up as social-justice investing.’”
Morningstar Inc, a Chicago-based financial service company, manages over $265 billion of assets worldwide. Widely influential in the industry, it also provides software and data platforms for investment professionals. In a firm the size of Morningstar Inc, ESG investment recommendations can make or break a business.
ESG investment recommendations reflect the growing demand for integrating social justice issues into corporate business decisions. In the United States alone, ESG investment companies now represent $17 trillion in business assets.
How BDS became embedded in Morningstar Inc
BDS – the Boycott, Divestment and Sanctions Movement – aims to destroy Israel through economic starvation and cultural isolation. For BDS activists, like the movement's founder Omar Barghouti, ESG recommendations are a perfect avenue to achieve this goal.
Making use of the cultural climate, BDS activists now brand Israel a “settler-colonial project.” Thus, anti-Israel advocacy became a cause célèbre among the intersectional crowd promoting social justice issues. That same crowd is making ESG investment recommendations to corporations wanting to put a good face forward on social justice issues.
A case in point is Morningstar Inc.
In 2017, Morningstar bought an interest in Sustainalytics, a Dutch ESG investment firm. Morningstar pursued Sustainalytics despite Sustainalytics track record of promoting BDS boycotts.
In 2019, Sustainalytics acquired GES International, a Swedish ESG investment company also known for promoting BDS to its clients. By 2020, Morningstar bought the entirety of Sustainalytics.
Omar Barghouti founded the Boycott, Divestment, Sanctions (BDS) movement in July 2005 after becoming a founding committee member of the Palestinian Campaign for the Academic and Cultural Boycott of Israel (PACBI) in 2004 (PACBI joined the BDS campaign in 2005).
He also co-founded the Palestinian Boycott, Divestment, Sanctions National Committee (BNC) in November 2007. The BNC leads and supports the BDS movement and, according to Barghouti, “sets the overall strategies, the objectives of the movement.”
Sustainalytics: Social Justice Issues and anti-Israel Bias
JLENS is a nonprofit company that promotes Jewish values in investing. In 2020, JLENS began engaging with Morningstar Inc to try to get it to change its anti-Israel ESG investment ratings.
JLENS called Sustainalytics and GES International:
“two of the most sophisticated enablers of the anti-Israel BDS (Boycott, Divestment, Sanction) campaign in the global investment field …”
In 2021, after a year with no success, JLENS put Morningstar Inc on its “Do Not Invest” list. A JLENS report explained:
- Morningstar pressures global companies with business ties to Israel to divest from its Israeli operations or cease sales to Israeli entities
- Morningstar elevates the “controversy rating” of companies that have ties to Israel
- Morningstar incorporates BDS blacklists and uses politicized anti-Israel language in its ESG investment reports
- Morningstar focuses on only three of the 100 disputed territories worldwide – Palestine, Western Sahara and Tibet
- Morningstar’s ESG investment screening enables institutions to divest from companies targeted by the BDS community
Another report, issued by FDD the year after JLENS’ findings, uncovered the methodology used by Sustainalytics to skew its ESG investment advice:
“Sustainalytics relies heavily, if not quite exclusively, on deeply flawed, anti-Israel sources, including anti-Israel non-governmental organizations (NGOs) such as Who Profits, Human Rights Watch, and Amnesty International.”
The FDD report further concluded:
“Companies that are in any way involved in the Israeli economy are automatically identified as complicit in human rights abuses in all Sustainalytics’ core products and are thus disproportionately punished in Sustainalytics ratings compared to companies doing business in any other country.”
Morningstar Inc Attempts Damage Control of its ESG Investment Policy
In July 2021, Morningstar Inc's focus on social justice issues began to catch up with them.
The Illinois Investment Policy Board, a government entity tasked with enforcing the state’s anti-BDS laws, initiated an investigation of Morningstar. Trying to get ahead of any forthcoming lawsuits, Morningstar commissioned an independent review of its ESG policies by the law firm White & Case.
In May 2022, White & Case published a report about Morningstar’s ESG policies in which they found a degree of BDS compliance. Morningstar Inc touted the report, claiming that it exonerated the company of any serious BDS complicity. In addition, the company made a few minor changes, particularly in the area of transparency of its ESG investment tools.
However, the fine print of the report told a different story.
So much so that, last month, 18 states joined the Missouri attorney general in launching an investigation into whether Morningstar violated the state’s anti-BDS laws.
Also last month, top financial authorities from 17 states called on Morningstar to change its ESG recommendations regarding Israel.
In total, 30 states in America have anti-BDS laws on the books. If Morningstar is found to be violating a state’s anti-BDS laws, state funds would be pulled out of the investment company.
Morningstar Inc has a lot to answer for. It also has a lot to lose.