Woke ESG investing’s anti-Semitism problem
Israel boycotters have a new home for waging economic war against the world’s only Jewish state: environmental, social and governance ratings. Federal and state officials should respond by demanding transparency for investors, enforcing existing anti-boycott laws and preventing retirement funds from being weaponized for anti-Semitic purposes.
Take the case of Motorola Solutions, a global leader in two-way-radio systems and command-center software for first responders. Headquartered in Chicago, the company boasts it strives to reduce carbon emissions and increase its workforce diversity. In almost every category, Motorola Solutions looks to be a model ESG-compliant— read “progressive” — corporate citizen.
Yet despite its low overall risk profile, Yahoo! Finance warns ESG-minded investors that Motorola Solutions carries a “significant controversy level” twice as large as its peer average. What it doesn’t disclose is the supposed controversy surrounds the company’s sales of counterterrorism equipment to Israel to stop suicide bombers from blowing up restaurants and buses.
For that level of detail, investors need to subscribe to the data’s source: Morningstar, a company just blocks from Motorola Solutions in downtown Chicago.
The financial-research giant, best known for its mutual-fund and 529-accounts reviews, expanded its ESG work in 2020 by acquiring Sustainalytics, a Dutch ESG-ratings firm.
But Morningstar’s due-diligence team either overlooked or ignored one red flag: years-long accusations Sustainalytics negatively rates Israel-connected companies in alignment with the global campaign to delegitimize the Jewish state.
Morningstar Sustainalytics mars dozens of Israeli companies, including the country’s leading banks and cellphone providers, with significant controversy ratings merely for providing services to Jews living in East Jerusalem, the West Bank and the Golan Heights.
These reports often note the companies are not directly tied to human-rights abuses but carry a rather extortion-like promise: We’ll consider an upgrade if firms divest from their operations in disputed territories. In other words, cut off basic services to Jews living in Israeli-controlled territory, and we may steer ESG investors your way.
For firms like Motorola Solutions and Elbit Systems — an Israeli defense contractor that provides Israel’s government with key counterterrorism tools — the boycott is even more severe. Both companies appear on a Morningstar Sustainalytics watchlist, which effectively serves as a do-not-invest list.
Morningstar dismissed allegations of anti-Israel bias within its ESG ratings when concerns were first raised in 2021. But states with laws prohibiting their pension funds from investing in Israel boycotters started asking questions, prompting Morningstar to commission a June 2022 “independent report” clearing the company of systemic bias against Israel.
The law firm commissioned, it turned out, sponsored forums with virulently anti-Israel speakers. And its report, filled with documentation of anti-Israel bias, raised more questions than it answered.
Arizona’s treasurer announced Morningstar might soon be added to the state’s prohibited-investment list. Missouri’s attorney general launched a multistate investigation into consumer fraud, asking Morningstar to turn over documents related to its ESG ratings of Israel-connected companies.
Morningstar’s crisis-communications machine returned in October, this time with public commitments to remove anti-Israel assumptions from its ratings. Jewish groups lauded the announcement as transformational, taking the company’s word it would remove controversies from Israeli companies and end the watchlisting of firms like Motorola Solutions and Elbit Systems.
But as 2022 ended with Morningstar Sustainalytics updating all its Israel-connected ESG ratings, it was boycotting business as usual in Chicago. Motorola Solutions and Elbit Systems remain on watchlists for helping one of America’s closest democratic allies stop terrorists from murdering civilians.
Israeli companies are still flagged for significant controversies for providing basic services to Jews living in East Jerusalem, the West Bank and the Golan — territories subject to geopolitical disputes dating back to 1967, when Israel launched preemptive strikes to prevent an invasion surrounding Arab armies planned. The fact these disputes are not settled is not Israel’s burden, yet Morningstar’s ESG ratings are nonetheless designed to pressure Israel into making unilateral political concessions.
That’s three strikes for Morningstar. Federal and state officials should step up to the plate. States with anti-boycott laws should put Morningstar on their prohibited-investment lists. House Republicans set to investigate the ESG industry should hold hearings on how the Israel-boycott movement found a new home inside ESG — with questions directed to Morningstar’s competitors to determine the extent of the industry’s anti-Israel practices. State attorneys general should likewise widen their probe.
Securities and Exchange Commission and Department of Labor ESG rulemaking should be reviewed to address anti-Israel boycotts disguised as ESG. Investors have a right to know about this kind of risk exposure — and retirement funds shouldn’t be used for anti-Semitic boycott campaigns.
Trillions of dollars are moving through ESG-related assets under management. Attempting to redirect those capital flows away from Israel-connected companies constitutes the largest economic attack on the Jewish state in 75 years. Shutting down the Israel-boycott operation inside Morningstar Sustainalytics is a critical first step in fighting back.
Richard Goldberg, a senior adviser at the Foundation for Defense of Democracies, served as a National Security Council official and US Navy Reserve intelligence officer.