Morningstar, Jewish groups at loggerheads over commitments to fix anti-Israel bias

Dueling letters show friction over financial services firm's efforts to curb purported bias in its company ratings

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In this photo illustration a person holding a smartphone displaying the Morningstar logo on a screen.

Tensions are flaring between financial services firm Morningstar and a coalition of Jewish and pro-Israel groups that have been lobbying the company to eliminate purported anti-Israel bias in its ratings products. 

In a letter sent to the company last month, the groups allege that Morningstar had failed to meet its commitments to update its ratings and procedures, provide sensitivity training to its staff and engage outside experts to advise it on issues related to Israel and antisemitism. Morningstar defended its actions in a response letter last week, saying that the company had made progress, while attributing some of the delays to the groups themselves.

Morningstar’s subsidiary Sustainalytics has been accused of engaging in anti-Israel bias in the ratings it provides to companies that operate in Israel. The company reached an agreement with a coalition of Jewish and pro-Israel groups last year, commiting publicly to address issues related to its ratings of companies that operate in Israel and the West Bank.

“After months of working with Morningstar in good faith, it appears that Sustainalytics is failing to do its part to implement the commitments that Morningstar made to eliminate the pervasive anti-Israel bias in Sustainalytics’ ESG ratings,” the coalition letter, sent on Dec. 30 and obtained by Jewish Insider, alleges. “We have grave concerns about the rate and direction of progress and have observed what we believe to be several alarming deviations from the October commitments.”

Morningstar insisted that it is continuing to work to fulfill the October commitments.

“We have done our best to be responsive to the coalition group’s concerns and specific requests throughout this process; have already implemented a number of changes; and have operated in good faith throughout this process,” Morningstar spokesperson Sarah Wirth said in a statement. “There’s been no change in our commitment to this work or to working productively with these organizations.”

The coalition letter was signed by the Jewish Federations of North America, the Louis D. Brandeis Center for Human Rights Under Law, the Anti-Defamation League, the American Jewish Committee, the Centre for Israel and Jewish Affairs, the Combat Antisemitism Movement, the Conference of Presidents of Major American Jewish Organizations, Christians United for Israel, Jewish Funders Network and UJA-Federation of New York.

They accused the company of having worked in direct contravention of its previous commitments, and alleged that “Sustainalytics’ conduct appears designed to prevent rather than promote substantive progress on the implementation of Morningstar’s commitments.”

Morningstar pushed back, claiming in its own letter that the company had not committed to changing its underlying assumptions that doing business with Israeli companies or in Israel is in and of itself a higher-risk proposition — and had agreed only to engage an expert to guide Sustainalytics on the issue.

Morningstar’s October public statement said it would “ensure that its analysts understand that business activity… within the regions linked to the Israeli-Palestinian conflict or related to Israel’s defense against terrorism, do not give rise to a presumption that there is a human rights concern.”

The coalition letter specifically notes that controversy ratings attached to companies operating in Israel have not changed, despite the company’s commitment to “ensure that pro-BDS assumptions would not drive Sustainalytics’ ratings of Israel-related companies.” Morningstar, the letter says, has admitted those companies are not involved in human rights violations.

Some controversy ratings also still state that they could be changed if the companies divested from West Bank operations, which the Jewish groups’ letter refers to as “a naked call to boycott and divest.”

The letter also accuses Morningstar of having disregarded Jewish groups’ recommendations on experts it could consult regarding Israel and antisemitism in favor of using “a slate of individuals who will confirm Sustainalytics’ pre-existing anti-Israel biases.”

Morningstar’s Wirth countered, “The fact remains that companies doing business in Israel continue to fare well in Morningstar’s ratings. Most Israeli companies are assigned an ESG Risk Rating of ‘Medium’ or ‘Low’; nearly three-quarters of Israeli companies are identified as having zero involvement in controversies of any kind; and Israel earns a ‘Low Risk’ Country Risk Rating.”

In the response letter, the company claimed that nearly three-quarters of the notations in its controversies database related to Israel and the Palestinian territories have been removed. It also said that it had removed more than 100 references to BDS, the U.N.’s list of companies linked to Israeli settlements and the U.N. Human Rights Council.

The company said that further changes are contingent upon the selection of an outside expert to advise it. The firm claimed its proposed list of experts was shared with the Jewish and pro-Israel groups in mid-December, and included three candidates proposed by them, but that its selection process was delayed at the Jewish groups’ request to allow the coalition to propose additional candidates. Morningstar’s response also attributed delays in beginning antisemitism training to the Jewish and pro-Israel groups, whom Morningstar claims had requested additional time to propose a training program.

Among the issues Morningstar said in its letter were contingent on the hiring of an expert was removing references to “occupation” from its descriptions of geographic areas; the company had already committed publicly in October to using geographic names.

An individual close to the process dismissed Morningstar’s response letter as “ridiculous” and called its argument that it cannot enact further changes to its existing ratings and processes until it hires an expert “a red herring.” The individual also argued that the steps Morningstar has taken so far have not gone as far as the firm claimed in its letter.

The pro-Israel and Jewish groups also alleged that the company has “sought to minimize the contributions of this coalition and narrow the scope” of training that was set to be provided to Sustainalytics staff on anti-Jewish and anti-Israel bias. The letter specifically claims that Sustainalytics has “discouraged the groups that are part of this coalition from joining together to propose a consensus training approach and content” and “stated that the training may not cover any subject areas that will be under the purview of the to-be-engaged expert(s).”

The letter refers to these conditions as “clearly contradict[ing] Morningstar’s commitments.”

The Jewish groups appeal to Morningstar to “salvage” their work together, but request “prompt and meaningful changes” to both its ratings and its approach, calling for the company to address the concerns laid out in the letter by the end of January.

Arizona’s state treasurer, Kimberly Yee, has found Morningstar to be in violation of its anti-Boycott, Divestment and Sanctions law and it’s facing investigation in multiple other states. A spokesperson for Yee said that the state’s investigation is ongoing and that Morningstar is “not cooperating.”

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