Increasingly, investors and investment managers have made much of evaluating companies based on “environmental, social, and governance criteria” (ESG) in order to allocate funds ethically. This isn’t a mere fad, but big business: in 2020, Morningstar—a large financial-services firm, whose ratings of stocks and bonds have tremendous sway—bought Sustainalytics, a firm specializing in ESG ratings, for nearly $60 million.

Among the activities deemed unethical by Sustainalytics is doing business with Israel. Public scrutiny, and the danger of running afoul of state laws meant to counter the boycott, divestment, and sanctions movement (BDS), have led the company to conduct an internal investigation and promise some changes. But it is too soon to declare victory, argues Scott Shay:

The report [resulting from the investigation] clearly shows that Morningstar has a de-facto boycott of Israel despite its official rejection of BDS. If Morningstar is allowed to maintain this de-facto boycott of Israel, while adding some polite words that this is not its official policy, this sets a dangerous precedent in the fight against BDS. Pro-Israel individuals and foundations should cease using Morningstar for their investment portfolios, otherwise they are participating in a boycott of Israel that they do not intend and allowing Morningstar to continue with its pretense that it does not support BDS.

And this is hardly a minor issue, as Shay explains:

ESG investing accounts for $17 trillion of investments in 2022, a huge proportion of the $45 billion total of U.S. stocks. Almost all Americans are influenced by ESG ratings whether it be in their pension funds, mutual funds, or personal portfolios. Much of the screening for ESG, is being done by Morningstar (through its subsidiary Sustainalytics) and by [another corporation], MSCI. In other words, these two companies direct where this money goes.

Morningstar is screening for BDS on behalf of all investors. In fact, going further, they even screen out non-Israeli companies that simply sell products to Israel on the basis that these products might be retrofitted to somehow cause harm. . . . . Currently the majority of pro-Israel individuals and foundations are likely using Morningstar for ESG investments whether they are aware of it or not and thus unwittingly boycotting Israel.

Over the weekend, Elliot Kaufman of the Wall Street Journal reported about a formal letter, signed by five prominent sheikhs from the Judean city of Hebron and addressed to the Israeli economy minister Nir Barkat. The letter proposed that Hebron, one of the West Bank’s largest municipalities, “break out of the Palestinian Authority (PA), establish an emirate of its own, and join the Abraham Accords.” Kaufman spoke with some of the sheikhs, who emphasized their resentment at the PA’s corruption and fecklessness, and their desire for peace.

Responding to these unusual events, Seth Mandel looks back to what he describes as his favorite “‘what if’ moment in the Arab-Israeli conflict,” involving

a plan for the West Bank drawn up in the late 1980s by the former Israeli foreign minister Moshe Arens. The point of the plan was to prioritize local Arab Palestinian leadership instead of facilitating the PLO’s top-down governing approach, which was corrupt and authoritarian from the start.

Mandel, however, is somewhat skeptical about whether such a plan can work in 2025:

Yet, . . . while it is almost surely a better idea than anything the PA has or will come up with, the primary obstacle is not the quality of the plan but its feasibility under current conditions. The Arens plan was a “what if” moment because there was no clear-cut governing structure in the West Bank and the PLO, then led by Yasir Arafat, was trying to direct the Palestinian side of the peace process from abroad (Lebanon, then Tunisia). In fact, Arens’s idea was to hold local elections among the Palestinians in order to build a certain amount of democratic legitimacy into the foundation of the Arab side of the conflict.

Whatever becomes of the Hebron proposal, there is an important lesson for Gaza from the ignored Arens plan: it was a mistake, as one sheikh told Kaufman, to bring in Palestinian leaders who had spent decades in Tunisia and Lebanon to rule the West Bank after Oslo. Likewise, Gaza will do best if led by the people there on the ground, not new leaders imported from the West Bank, Qatar, or anywhere else.