Arizona’s state treasurer put investment firm Morningstar on notice that it is violating the state’s anti-BDS law.

Last week, Arizona State Treasurer Kimberly Yee wrote a letter to Morningstar CEO Kunal Kapoor, giving him 30 days to explain how the company is in compliance with the law. Otherwise, wrote Yee, Morningstar will be placed on the state’s list of prohibited investments.

Yee cited a report by law firm White & Case which was commissioned by Morningstar in determining that Morningstar’s subsidiary, investment ratings company Sustainalytics, “uses anti-Israel and anti-Semitic sources to negatively impact the scores of companies doing business in Israel and in Israeli-controlled territories.”

Morningstar has often pointed to the White & Case report, which recommended dozens of changes in Sustainalyics’ processes in order to eliminate the chance of anti-Israel bias in its ratings, as proof that the company is not engaging in a boycott of Israel.

Unconvinced, Yee wrote to Kapoor, saying “I will not allow companies to promote policies that are anti-Semitic and discriminatory efforts against Israel, which is America’s longtime friend and ally, and a significant trade partner with Arizona.”

Sustainalytics specializes in providing investors with ratings for companies based on their environmental, social and governance (ESG) policies. Yee and other Morningstar critics allege that Sustainalyics uses well-known anti-Israel sources and weighs them disproportionately in creating an inherently anti-Israel ratings system that punishes companies doing business in and with Israel, along with Judea and Samaria.

“The very fact that Sustainalystics has chosen to review companies doing business in Israel under the guise of its ESG rating system violates Arizona law as your company is ‘performing actions that are intended to limit commercial relations with entities doing business in Israel,’ ” Yee wrote in her letter.

She provided Kapoor with a 30-day window to “potentially cease issuing or revise the process for preparing reports and research under the guise of ESG as it relates to companies doing business in Israel.” Yee also required that Morningstar provide an averment that they “will not engage in any future boycott activities against Israel.”

A Morningstar spokesperson told JNS that “Morningstar does not support the anti-Israel BDS campaign.” She said that Morningstar is reviewing the information from Yee and “plan[s] to respond.”

A new Arizona law set to take effect in late September requires any Arizona government entity to divest from any company on the state’s prohibited investment list. A treasurer’s office spokesperson says Arizona does not currently have any public funds invested in Morningstar.

Last week, Missouri Attorney General Eric Schmitt announced that attorneys general in 18 U.S. states had joined his investigation into whether Morningstar violated consumer-protection law with its evaluations of companies’ performance on ESG issues. Arizona was not among those states, though prior JNS reporting indicated Arizona was among the likely states considering action on the issue.

Schmitt sent questions to Morningstar in late July, asking what sources the firm uses for its analysis of companies’ investment risks. He also requested documents and communications related to the Israeli-Palestinian conflict and BDS that Morningstar may have.

Separately, the Illinois Investment Policy Board says it closed an investigation into Morningstar’s practices following the company’s pledge to implement the White & Case recommendations, though the chair of the board’s subcommittee on Israel disputes that the issue has been resolved.


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