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EXCLUSIVE

Morningstar deflags Motorola from watchlist over its Israeli business

The controversial investment ratings firm could damage more than two dozen companies, including Motorola, financially for servicing Jews in “occupied” territories.

Smartphone with webpage of American financial-services company Morningstar Inc. on screen in front of the logo, Feb. 6, 2022. Credit: T. Schneider/Shutterstock.
Smartphone with webpage of American financial-services company Morningstar Inc. on screen in front of the logo, Feb. 6, 2022. Credit: T. Schneider/Shutterstock.

Morningstar, a Chicago investment ratings firm with $1.9 billion in revenue, has been embroiled in allegations of anti-Israel bias for more than a year, and multiple U.S. states are investigating it and subsidiary Sustainalytics, in part, for potential violations of anti-BDS laws.

JNS has learned exclusively that Morningstar has removed U.S.-based Motorola Solutions from its Global Screening Standards watchlist. According to Morningstar, the GSS list assesses “the extent to which a company causes, contributes or is linked to violations of international norms and standards.”

Despite ongoing follow-through on a review process to which Morningstar agreed with a coalition of American Jewish and pro-Israel organizations, critics say problems remain. Morningstar pledged to stop presuming that every business with activity in Judea and Samaria and eastern Jerusalem has human-rights concerns.

But if Morningstar is indeed living up to that pledge, there appears to be no tangible positive effect on the controversy scores of any of the 28 companies operating in territories that Israel controls, which Sustainalytics flagged.

Richard Goldberg, a senior adviser at the Foundation for Defense of Democracies, told JNS that the lack of positive impact is evidence that Morningstar and Sustainalytics are employing a form of BDS, wherein a company can only repair a controversy rating by halting any type of business in Judea and Samaria and eastern Jerusalem.

“First, we had a U.N. blacklist of Israel-based companies, and now we have a Morningstar blacklist of Israel-based companies,” said Goldberg. “Why is Morningstar engaged in economic warfare against every Israeli bank and cell-phone company? This isn’t ESG. It’s BDS.” (ESG refers to the “environmental, social and corporate governance” movement, which is supposed to help guide the decisions of socially conscious investors.)

Last October, Morningstar reached an agreement with a broad group of U.S. Jewish and pro-Israel groups to address concerns of anti-Israel bias in its ESG research. That research contributes to ratings Morningstar assigns to companies, which socially conscious investors then use.

“Why is Morningstar engaged in economic warfare against every Israeli bank and cell-phone company? This isn’t ESG. It’s BDS.” — Richard Goldberg

Critics allege that Sustainalyics relies heavily on blatant and reflexively anti-Israel sources in its ratings research and has attempted to minimize the systemic nature of its anti-Israel culture. Morningstar, which has consistently denied promoting a BDS or anti-Israel agenda, offers an online tracker ostensibly to show progress towards fulfilling its arrangement with the aforementioned coalition.

Beyond removing Motorola from its watchlist, Morningstar has also erased controversy ratings associated with Motorola, which it previously tagged with a “category three” listing. That denotes “a significant impact on the environment and society, posing significant business risks to the company,” per Morningstar.

Morningstar stated that it placed Motorola in that risk category due to its “supply of equipment that can be used for surveillance and population control, a common controversy and human-rights concern for telecom/tech companies around the world, and the fact that there is a related lawsuit.”

The reference to surveillance and population control appeared to pertain largely to security systems, which detect human movement near the security barrier that Israel built in response to numerous Palestinian suicide bombings during the Second Intifada from 2000-05. The systems also surveil perimeters around Jewish communities beyond the Green Line to prevent terrorist attacks.

“We could no longer confirm that Motorola has ongoing contracts with the Israeli military for the delivery of surveillance services used in the West Bank barrier and checkpoints,” Sarah Wirth, a Morningstar spokeswoman, told JNS this week.

The United Nations Human Rights Council included Motorola on its highly controversial 2020 blacklist of businesses conducting activity in what the United Nations deems “occupied Palestinian territory,” for the “supply of surveillance and identification equipment for settlements, the wall and checkpoints directly linked with settlements.”

Morningstar previously stated that Sustainalytics analysts, as part of the recent agreed-upon reassessments, “reevaluated the link between the companies’ activities and potential human-rights violations” in the context of the Israeli-Palestinian conflict area.

This was part of a pledge Sustainalytics made to the U.S. Jewish and pro-Israel groups that it would provide additional documented guidance to 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.”

‘A result of internal processes’

In response to questions from JNS, Morningstar said this week that Altice Europe NV, a French multinational telecommunications and mass media giant which previously held a “category two” (moderate) controversy rating, now has no rating attached to it, only as a result of its early-2021 corporate acquisition by Next Private.

The U.N. Human Rights Council included Altice on its blacklist due to its purported “provision of services and utilities supporting the maintenance and existence of settlements, including transport.”

Per policy, Altice received the controversy rating of its new parent company, Next Private, said Morningstar. Although Next Private acquired Altice in January 2021, it took Morningstar until two months ago—more than two years later—to change Altice’s rating because it needed to research Next Private and to accommodate investors still holding Altice fixed income securities, according to Wirth.

Meanwhile, B Communications was downgraded from “category one” (low) to “category two” in December, during the recent review process. Morningstar told JNS that the downgrade is a result of B Communications becoming the largest shareholder in Israeli telecommunications giant Bezeq, altering its corporate profile. Bezeq is tagged with a “category three” rating by Morningstar.

B Communications has been the controlling shareholder in Bezeq for several years, but Morningstar explained that it only downgraded the company in December 2002 due to changes in the way it analyzes “the relationship between parents and subsidiaries and enhancements that bring consistency for low-scoring controversies (category one and two).”

Wirth told JNS that all of the changes in its controversy scores were “a result of internal processes” that “are not unique to these companies.”

Additionally, Elbit is flagged on Sustainalytics’ GSS watchlist. Morningstar has previously acknowledged that “some clients may use GSS as a so-called ‘do not invest’ list in order to comply” with investment policies that demand divestment from companies deemed to breach international standards of business conduct.

Elbit, like Motorola, facilitates security systems for the security barrier in Judea and Samaria. It has also been criticized for its supply of unmanned aerial vehicles (UAVs) allegedly used for surveillance and in attacks in which civilians were killed during Israeli military operations against terrorist groups in Gaza in 2009 and 2014, even though Sustainalytics cites no evidence of any systematic targeting of civilians using those UAVs.

“It’s welcomed news that Motorola Solutions was removed from the watchlist after being called out publicly, but what about the others?” posed Goldberg. “Why is Elbit Systems still on a watchlist just for helping Israel save civilian lives from terrorist attacks?”

Wirth stressed that Morningstar’s activities in conjunction with the American Jewish/pro-Israel coalition is “a work in progress” and that Morningstar asserts it is, indeed, making progress towards fulfilling its pledges, offering a monthly update on its tracker.

That includes the impending hiring of an independent expert who is “well-versed in the policy, security, history and religious and legal context of the Israeli-Palestinian dispute,” from whom the company will “seek advice regarding its assumptions, sources and use of language.”

The process of selecting the expert has caused friction between the company and the coalition with Morningstar accusing the coalition of holding up the process, and the coalition expressing concerns about Morningstar’s initial preferences.

Wirth told JNS that a multiple-round interview process is ongoing and that the June 2023 timeline to fulfill all of its agreements from last October is still in place.

*Some 26 companies doing business in Israel-controlled territories remain flagged by Morningstar and Sustainalytics. They include Africa-Israel Investments Ltd. (Category 3); Ashtrom Group Ltd. (2); B Communications Ltd. (2); Bank Hapoalim BM (3); Bank Leumi Le-Israel Ltd. (3); Bezeq The Israeli Telecommunication Corp. Ltd. (3); Caterpillar, Inc. (4); Cellcom Israel Ltd. (3); CEMEX SAB de CV (3); CNH Industrial NV (2); Construcciones y Auxiliar de Ferrocarriles SA (2); Delek Group Ltd. (3); Elbit Systems Ltd. (4); Elco Ltd. (2); Electra Ltd. (2); Energix-Renewable Energies Ltd. (2); Enlight Renewable Energy Ltd. (2); F.I.B.I. HOLDINGS LTD (2); HeidelbergCement AG (3); Israel Discount Bank Ltd. (3); Mizrahi Tefahot Bank Ltd. (3); Partner Communications Co. Ltd. (3); PayPal Holdings, Inc. (2); Shapir Engineering & Industry Ltd. (2); The First International Bank of Israel Ltd. (3); and Volvo AB (2).

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