After months of wrangling, the Morningstar investment firm has reached an agreement with pro-Israel organizations to alter its methodology in determining its risk ratings for companies doing business in and with Israel, JNS has learned.
At Monday’s Jewish Federations of North America General Assembly, an announcement will be made regarding an agreement between Morningstar and a working group including such organizations as Jewish Federations of North America, Christians United for Israel and the Combat Anti-Semitism Movement. While the exact details have not been finalized, a source close to the process says that Morningstar has moved toward the working group’s demands on issues such as the assumptions and sources it uses in developing its risk ratings, which have drawn the ire of pro-Israel groups and the attention of officials from 20 states investigating whether Morningstar’s practices violate laws against boycotting Israel.
In a statement late Sunday, JFNA President and CEO Eric Fingerhut told JNS that “we’ve been working tirelessly to get Morningstar to adopt a strong set of safeguards and policies to ensure that their ESG ratings are not biased against Israel. We are hopeful at the prospects of reaching a broad consensus across the Jewish community to ensure that we root out anti-Israel bias.”
Morningstar and its subsidiary, Sustainalytics, are accused by critics of utilizing anti-Israel sources and weighing them disproportionately in assigning ESG (environmental, social and governance) risk ratings to companies as guidance for socially-minded investors. The ratings, which assign a higher risk simply for doing business in or with Israel or in Israel-controlled territories, amount to a de facto boycott of Israel, allege several American Jewish groups and state officials.
Morningstar has insisted it does not practice BDS, and has pointed to an independent report it commissioned which claims there is no inherent anti-Israel bias in its ratings process. The company promised to implement some 40 recommendations springing from the report to ensure any bias is eliminated, but opponents say the changes, if implemented, would do little to root out the core bias they say is in place.
According to the source, Morningstar has been resisting substantive changes in its discussions with the working group, only moving off its position over the last few days. The source indicates there was some dissension within the working group itself over how far Morningstar would need to go to satisfy the group’s demands.
In terms of the changes now on the table, the source says that “the question everyone is asking is whether Morningstar will actually change the ratings of specific companies after these steps are announced. It’s one thing to say you are against BDS. It’s another thing to stop engaging in BDS. That will be the cloud continuing to hang over Morningstar until they show companies are no longer being sanctioned.”
