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‘We’re cutting them loose,’ chief Florida financial officer says of Morningstar

A spokeswoman said the investment firm is “working with our analysts and clients to implement each of the remaining experts’ recommendations swiftly—before the end of this year.”

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.

Florida intends to cut its ties with Morningstar until the investment firm can prove it has rooted out anti-Israel bias in its investment ratings platforms, the state’s chief financial officer told JNS on Thursday.

“We’re not renewing our services with Morningstar. We’re cutting them loose,” Jimmy Patronis, who manages some $60 billion in Florida funds, told JNS exclusively. “There are other ways we can do this and we don’t need Morningstar helping manage our ratings here in the state’s treasury.”

Morningstar has provided ratings for Florida’s deferred compensation program for state employees at least since 2016. The contract is in the low five figures annually and will end this August, according to the Florida chief financial officer’s office.

Chicago-based Morningstar is “a leading provider of independent investment insights,” which had $2 billion in revenue in the last fiscal year, per its most recent earnings release. Its subsidiary, Sustainalytics, has more than 1,000 clients and serves “18 of the top 20 asset managers,” per its site.

Morningstar and Sustainalytics have been altering their environmental, social and governance (ESG) ratings systems, which a coalition of U.S. Jewish and pro-Israel organizations have alleged was inherently biased against Israel. 

The coalition accused the firm of heavily weighing anti-Israel sources, such as those advocating a boycott of Israel (BDS), to generate “controversies” that downgraded scores, which socially conscious investors use in their decisions.

Critics allege that Morningstar and Sustainalytics automatically penalized companies doing business in eastern Jerusalem and Judea and Samaria, beyond the so-called “green line,” which Sustainalytics referred to as “occupied territory” that belongs to the Palestinians.

Some have termed this a case of low-key or “backdoor” BDS, which they say has a chilling effect on companies that may want to do business in Israel-controlled territory but fear being slapped with investment ratings penalties.

In cooperation with the coalition, Morningstar commissioned two independent experts to review the ratings process. The experts produced a list of recommendations, all of which Morningstar says it has implemented or is in the process of doing so.

Patronis, Florida Gov. Ron DeSantis and the state’s attorney general Ashley Moody form the board of trustees of Florida’s State Board of Administration, which manages some $200 billion in retirement funds and which put Morningstar on its list of scrutinized companies that boycott Israel.

DeSantis said last week that Morningstar will be removed from the “scrutinized” list if it follows through on recommendations to remove references to companies operating in Judea and Samaria working in “occupied territories” and to prove it is in compliance with Florida’s law prohibiting boycotts of Israel.

Sarah Wirth, a Morningstar spokeswoman, said that the company would look to resume its services in Florida once it is removed from the blacklist.

‘Get their act together’

The State Board of Administration’s listing of Morningstar wasn’t “really strong enough,” according to Patronis, who makes the state treasury’s final decisions.

“I think Morningstar did make it clear that they’re going to make some efforts,” he told JNS. “But I really want to see solid evidence.”

Patronis told JNS that the way to get people’s attention is through their pocketbooks. “This is exactly what we intend to do through my jurisdiction,” he said.

Hopefully, Morningstar will be motivated “to get their act together,” he said. “Right now, my treasury is going to terminate relationships with them.”

Morningstar has corresponded with the State Board of Administration, so Patronis told JNS that he doesn’t feel the need to warn the firm about the state treasury severing ties or to advise the company that Florida is leaving the door open to resume doing business should Morningstar implement changes.

“They’ll figure it out,” he told JNS.

Patronis said he will probably contact the State Financial Officers Foundation, which “will trigger other state treasurers to do the same” with respect to Morningstar. 

“We’ll get their attention, and I’m sure Morningstar will then react and then make their case,” he said.

Morningstar updated its public process report on Friday, “which reflects the implementation status of each of the experts’ recommendations and includes that we have completed the repeal of the ‘Occupied Territories/Disputed Regions’ incident type and removed those controversies that are associated with issuers from several countries,” Wirth, the Morningstar spokeswoman, told JNS.

The firm is “working with our analysts and clients to implement each of the remaining experts’ recommendations swiftly,” she added. “Before the end of this year.”

Patronis noted that Florida’s treasury and its State Board of Administration have $250 million invested in Israel Bonds. 

“I put my money where my mouth is,” he said. “I don’t know if there’s another state treasurer that has as much money invested in Israel Bonds than the state of Florida does.”

He stressed Florida’s relationships with Israel, especially in the wake of global diplomatic strains during Israel’s war against Hamas. “I think it is that much more important that Florida double down,” he said.

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