Morningstar Acquires Research Firm with Anti-Israel Bias
Last week Morningstar, a US-based public company that provides analysis tools to investors, announced an acquisition of Sustainalytics, a Dutch-based socially responsible investment research and ratings company. JLens, an investor network that explores a Jewish lens on investing, conducted a review of five responsible investment research firms and concluded that Sustainalytics research contained the most anti-Israel bias.
The responsible investing arena inherently relies on value judgments, however they must be transparent so investors can navigate them. Clarity around value judgments is even more essential when it comes to human rights assessments, the most subjective area of environment, social and governance (ESG) analysis. Unlike environmental or employee data, which is often quantitatively disclosed, human rights data is often subjective and scarce, especially in conflict regions. Scoring relies on news reports along with activist sources, raising significant concerns of biased sourcing.
There are enormous implications when Sustainalytics manifests anti-Israel bias, ranks Israel as disproportionately controversial compared to other conflict regions, relies on politicized news sources, and singles Israel out for uniquely harsh treatment in scoring. Overall JLens’ analysis concluded:
Sustainalytics significantly elevates companies’ negative controversy ratings due to Israel-based operations
Sustainalytics’ Israeli company profiles contain more negative reporting analysis and weighting than other conflict areas, such as China/Tibet
Sustainalytics’ “Human Rights Radar” and other human rights analysis is based on subjective client demand and viewpoints rather than objective analysis, such that Sustainalytics appears to generate data to meet clients’ agendas
Politically-biased activists and entities, such as the Boycott-Divestment-Sanction (BDS) campaign, are sourced and quoted in Sustainalytics’ analyst commentary without a counter narrative, tacitly legitimizing and amplifying the voice of this activist source
Sustainalytics’ scoring punitively factors in the United Nations Human Rights Council’s (UNHRC) blacklist of companies operating in Israel. The UNHRC’s bias against Israel is well documented. The Council has condemned Israel 62 times, more than all other nations combined. Israel is the only country that is a permanent UNHRC agenda item. Resolution 31/36, which authorized the creation of the blacklist, was sponsored by some of the world’s leading human rights violators, including Russia, Sudan, and China.
Sustainalytics analysis promotes an unbalanced narrative that enables politicized divestment from one side of a two-sided conflict
Sustainalytics’ anti-Israel bias is exacerbated by the tactics of the Boycott-Divestment-Sanction (BDS) campaign, a political campaign that questions Israel’s right to exist and aims to generate significant controversy around business operations in Israel. The BDS campaign seeks to negatively manipulate the ESG rankings of companies operating in Israel with a flood of inaccurate news and biased reports on Israel. The BDS campaign furthers their political agenda by proliferating questionably sourced, biased and misleading articles leading to a perceived reputational risk and increased controversy. This results in Sustainalytics’ downgrading ESG ratings for companies with business ties to Israel, achieving the economic warfare tactic of the BDS campaign.
Sustainalytics’ research bias against Israel misleads investors, and if left unaddressed, risks the reputation of Morningstar as an objective and reliable source of ESG data. Sustainalytics research is used by investors to make investment and divestment decisions, vote proxies, and engage in advocacy to influence corporate actions.
With the goal of ensuring credibility in the responsible investment arena, Morningstar must improve Sustainalytics’ reporting methodology with respect to Israel, eliminate politically motivated sourcing, and increase transparency on value judgements incorporated into human rights and controversy research reports and scoring.