Last year, Morningstar—a leading provider of financial services—came under fire because its subsidiary, a company called Sustainalytics, had been systematically giving low “environmental, social, and governance” (ESG) ratings to companies that do business with Israel. Investors have come to rely on ESG ratings as a way of reassuring themselves and their clients that their money isn’t being used unethically. As a result, Morningstar announced last month that it had taken a series of steps to avoid further hostility toward the Jewish state. In an in-depth analysis, Richard Goldberg argues that there is reason to believe the underlying problems have not disappeared. In fact, Goldberg suggests, Sustainalytics seems to be acting in a way that supports the campaign to boycott, divest from, and sanction the Jewish state (BDS).
A core premise of the BDS campaign has permeated Morningstar Sustainalytics’ ESG risk assumptions: east Jerusalem, the entirety of the West Bank, Gaza, and the Golan Heights are deemed Occupied Palestinian Territories (OPT) where Israel is [supposedly] committing systemic human-rights violations against Palestinians, and all companies operating in these areas are—based simply on their location—at risk of contributing to human-rights abuses. This presumption of human-rights risk triggers the company’s incident team to investigate companies operating in or around these territories for controversy ratings.
In a document responding to questions on why an Israeli telecommunications company operating in the West Bank received a “Category 3 Significant controversy” rating, Sustainalytics wrote, “Our perspective is that the current operations in the Occupied Territories create an unmanageable human-rights risk for the company.” That presumption upends the Oslo Accords, however, which allowed for an Israeli presence in various parts of the West Bank and which envisioned Israel retaining portions of the West Bank. Notably, the presumption that any Israeli presence beyond Israel’s 1967 border is a human-rights violation is one of the same presumptions used by the BDS campaign.
This approach leads to the infliction of harm on Israeli and Israel-connected companies. Israeli banks, for example, receive a Category 3 Significant controversy rating simply for providing services to Jews living in parts of Jerusalem—the capital of the Jewish state and home to the Western Wall — or the disputed West Bank.
Read more on FDD: https://www.fdd.org/analysis/2022/11/21/how-to-assess-changes-in-morningstar-sustainalytics-esg-ratings/