When investors need help navigating business decisions in conflict zones they turn to specialized firms that are supposed to help them keep clear of human rights abuses. But one of the biggest firms offering advice on environmental, social, and governance issues recently announced that when it comes to the Israeli-Palestinian conflict, it will no longer have anything to say.
The conflict is just too complicated to weigh in on, Morningstar announced last month, following years of pressure by pro-Israel groups who charged that the ESG field effectively fuels Israel boycotts.
The company said it devised a new policy that ends coverage of human rights issues connected to “disputes concerning contiguous territories” after an investigation of alleged anti-Israel bias in the company’s research and analysis.
“This means we won’t cover those areas because human rights issues, when related to contiguous territorial disputes, are less likely to be objective, reliable, or consistent, and subject to complex geopolitical factors, divergent views and conflicting partisan media reports,” Morningstar said in a statement posted to its website.
The policy change caps off a series of reforms implemented by Morningstar in response to scrutiny by a coalition of pro-Israel groups, including the Jewish Federations of North America, The Louis D. Brandeis Center for Human Rights Under Law, the American Jewish Committee and the Anti-Defamation League.
After initially rejecting allegations that the company inappropriately downgraded Israeli companies and companies doing business in Israel, Morningstar changed course in 2022 when it was on the verge of being blacklisted by Illinois’ public pension systems. The company appointed two people as independent experts and asked them for detailed feedback about its operations.
The experts, retired U.S. diplomat Alejandro Daniel Wolff and Vanderbilt University law professor Michael Newton, issued recommendations, such as eliminating the use of the term “Occupied Palestinian Territory” from its research products.
In a report released Dec. 31, the experts announced that Morningstar had implemented changes that adequately address the concerns, noting that the “Israel/Palestinian conflict area” was now excluded from analysis entirely.
The coalition of pro-Israel groups welcomed the news in a statement, saying it merely wanted Israel held to the same standards as any other country.
“Our coalition believes structural anti-Israel bias is a form of antisemitism, and we applaud Morningstar’s efforts and good faith cooperation to root out anti-Israel bias from their products,” ,” the statement said. “The experts’ recommendations and the framework Morningstar developed should serve as a model for the entire ESG industry to ensure that credit ratings are not infected with anti-Israel bias.”
Other regions also now ineligible for analysis under the new rule are the Donetsk and Luhansk People’s Republics in eastern Ukraine; the Essequibo region of Guyana; Kashmir between India and Pakistan; Nagorno Karabakh, contested between Armenia and Azerbaijan; and Western Sahara in Africa, Morningstar told the news outlet Responsible Investor.
The outlet quoted a variety of voices, including investors and watchdogs, who were critical of the exclusion of contiguous territorial disputes.
Phil Bloomer, executive director of the Business and Human Rights Resource Centre, for example, called the new rule “mystifying.”
“This is the reality of most 21st-century conflict,” he said. “Investors need access to more, not less data and understanding of the role of business in contributing to human rights risks and abuse in acute and chronic conflicts.”
The conclusion of the dispute at Morningstar comes as conservative and pro-Israel groups escalate pressure on another ESG company over the same issue. MSCI is currently pushing back against allegations that it discriminates against Israel with investment ratings that rely on biased sources of information.
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