The coalition of organizations that has worked for over two years to remove bias from ratings in Morningstar’s Sustainalytics ESG (Environmental, Social, and Governance) welcomes the independent expert report released this morning. This coalition along with other stakeholders pressed the company to engage independent experts to evaluate its methodology, and we believe the report will lead to positive changes–changes that could inform and possibly reform the entire ESG industry.
The experts chosen by Morningstar, Prof. Michael Newton and Ambassador (ret.) Alex Wolff, made seven recommendations to eliminate anti-Israel bias in company ratings and ensure that Sustainalytics’ ESG product is among the most objective and accurate available.
We commend Morningstar for its stated commitment to implementing these recommendations by the end of 2024. Morningstar has already commissioned a follow-up report by the same experts to evaluate its progress.
The coalition’s efforts built off work by JLens, supported by the Jewish United Fund of Metropolitan Chicago and the Foundation for the Defense of Democracies, which identified that Sustainalytics ESG methodology resulted in poor “human rights controversy” ratings for an extraordinarily disproportionate percentage of Israeli companies or companies operating in Israel. Faulty assumptions, poor sourcing, and flawed models threatened to deny these companies access to capital from ESG funds and mar their reputations.
Morningstar’s engagement with our coalition has already resulted in significant change. Last year, Morningstar removed unfair controversy ratings from over 100 firms operating in or doing business with Israel, a 94% decrease.
The expert recommendations, if implemented to their full extent, will ensure that Morningstar has a superior ESG product. As the expert report notes, a neutral and objective ESG rating system must operate on the assumption that companies operating in Israel should "be held to the same standards of corporate responsibility and action as any other companies operating anywhere else in the world." The report offers pointed guidance on how this neutrality can be achieved, and why such neutrality is essential to maintaining the integrity of the ESG process.
We look forward to continuing to monitor the implementation of the report’s recommendations to ensure further progress and prevent backsliding. The ultimate measure of success remains how companies connected to Israel are rated, watchlisted and engaged.
The steps advocated by the coalition and Morningstar to improve its ESG product can serve as a model for other financial firms. We call on other firms to embrace openness and transparency, as well as the rigorous, consistent and objective methodology outlined in the report to reassure the public that their financial advice is not politicized and that Israeli companies and companies operating in Israel are treated like all other companies.
The groups engaged in these efforts include The Jewish Federations of North America, Anti-Defamation League, American Jewish Committee, JLens, the Foundation for Defense of Democracies, and The Louis D. Brandeis Center for Human Rights Under Law, in coordination with the Conference of Presidents of Major American Jewish Organizations, Hadassah the Women’s Zionist Organization, Jewish Funders Network, Combat Antisemitism Movement, Jewish United Fund of Metropolitan Chicago, Jewish Community Foundation of Greater Hartford, and UJA-Federation of New York.
"This report reaffirms how easy it is for anti-Israel bias to become entrenched, and how important it is for our community to remain vigilant and engaged,” said Eric Fingerhut, President and CEO of the Jewish Federations of North America. “We commend Morningstar for both its active engagement with our community, its strong stance against the Boycott, Divestment, and Sanctions (BDS) campaign against Israel, and the significant progress it has made toward reinforcing the fact that bias has no place in financial ratings.”
The report’s recommendations included, among others:
- Eliminating the “occupied territories/disputed regions” incident type to prevent geographic assumptions from biasing the ratings process
- Examining facts on the ground in evaluating human rights violations rather than relying solely on uncorroborated media accounts
- Ensuring international legal standards are applied in their full scope
- Preventing third parties from manipulating ratings through generation of unfavorable media
- Incorporating additional legal expertise, including considering appointing a designated expert under the company’s Chief Legal Officer, to evaluate human rights law-related issues
- Requiring analysts to clearly define what specific human rights a business is alleged to be violating
“We welcome Morningstar’s commitment to eliminate anti-Israel bias in Sustainalytics research products,” said Jonathan A. Greenblatt, CEO of the Anti-Defamation League (ADL). “We look forward to ongoing engagement with Morningstar to ensure the expert recommendations are fully and effectively implemented.”
"This welcome result shows what the Jewish community can accomplish when it works together cooperatively. We demonstrated that Morningstar’s ESG ratings were slanted to the detriment of Israel and companies doing business in Israel, which the ratings attempted to hold to a different standard than any other nation.This excellent report shows the Jewish community that Morningstar is committed to ensuring that doesn’t happen again,” said Ted Deutch, CEO of American Jewish Committee.
“Anti-Israel external forces are doing everything they can to infiltrate campuses, boardrooms, the U.N., sports leagues, and the securities industry. We commend Morningstar for engaging with us, examining their ESG product, and committing to make the changes necessary to ensure that their rating system is apolitical, objective, and honest. We believe that implementing the experts' report is critical to achieving this goal. We look forward to continuing to work with Morningstar in its execution of these recommendations, and we urge other companies to follow suit,” said Kenneth L. Marcus, Founder and Chairman of the Louis D. Brandeis Center for Human Rights Under Law.
"Investors are entitled to research that is both objective and devoid of any anti-Israel bias," said Ari Hoffnung, Managing Director of JLens. "Our ongoing collaboration with fellow Jewish community organizations aims to ensure financial data providers remain uninfluenced by Boycott, Divest, and Sanctions activists seeking to deter companies from doing business with Israel."