April 24, 2023 | Policy Brief

Morningstar Blacklist May Violate State Anti-BDS Laws

April 24, 2023 | Policy Brief

Morningstar Blacklist May Violate State Anti-BDS Laws

The Jewish News Syndicate (JNS) last week reported that Sustainalytics — the environmental, social, governance (ESG) ratings arm of Morningstar, Inc. — imposes negative “controversy” ratings on “26 companies doing business in Israel-controlled territory.” This blacklisting of companies that operate in parts of Jerusalem, the West Bank, or the Golan Heights may violate several U.S. state laws related to boycotts of Israel-based companies.

Much like the blacklist of companies published by the United Nations Human Rights Council in 2020, Morningstar’s ratings use anti-Israel assumptions and sources to convince investors that Israel-connected companies are at risk of violating international human rights standards simply because of where they operate. Thus, the Morningstar blacklist includes telecommunications and financial services firms that provide the same services in the West Bank they do elsewhere. To justify this approach, Morningstar Sustainalytics relies heavily on sources that promote the boycott, divestment, sanctions (BDS) campaign against Israel.   

In response to such anti-Israel activism, more than 30 U.S. states have adopted laws or executive orders intended to deter companies from engaging in BDS activities targeting the Jewish state. Some states prohibit contracting with companies that boycott Israel, while others mandate divestment of state funds, including pension fund investments, from such companies. Several states enforced these laws after Unilever subsidiary Ben & Jerry’s announced a boycott of Israel.

In that case, Ben & Jerry’s refused to renew its Israeli licensee’s license, punishing the Israeli company for selling ice cream in parts of Jerusalem and the West Bank. Similarly, Morningstar punishes companies that operate in these same areas using its own unique economic leverage: controversy ratings designed to influence investment decisions. According to JNS, Morningstar Sustainalytics’ blacklist includes every Israeli bank and cellphone company in addition to defense contractor Elbit Systems, which also appears on Morningstar Sustainalytics’ Global Standards Screening watchlist for selling Israel counterterrorism technology.

Legal definitions of “boycott Israel” vary by state. Illinois and New Jersey, for example, mandate divestment from any firm that “boycotts companies operating in Israel or Israeli-controlled territory” and define “boycott” to mean engaging in actions that are “intended to penalize, inflict economic harm on, or otherwise limit commercial relations with” Israel.” On its face, imposing negative controversy ratings on companies due to their operations in Israeli-controlled territory with the intended purpose of discouraging investment would constitute “actions that are intended to penalize” or “inflict harm on” such companies.

Florida and other states, however, define “boycott Israel” to mean “refusing to deal, terminating business activities, or taking other actions to limit commercial relations with Israel, or persons or entities doing business in Israel or in Israeli-controlled territories, in a discriminatory manner.” While this definition clearly applied to the case of Ben & Jerry’s, its application to Morningstar is less clear. States with narrower definitions should consider broadening their statutes to cover BDS achieved through ESG ratings.

State officials can start their investigations of Morningstar’s BDS activities by requesting copies of all Morningstar Sustainalytics controversy reports, Global Standards Screening reports, and internal and external correspondence related to the following 26 companies identified by JNS:

  1. Africa-Israel Investments Ltd.
  2. Ashtrom Group Ltd.
  3. B Communications Ltd.
  4. Bank Hapoalim BM
  5. Bank Leumi Le-Israel Ltd.
  6. Bezeq The Israeli Telecommunication Corp. Ltd.
  7. Caterpillar, Inc.
  8. Cellcom Israel Ltd.
  9. CEMEX SAB de CV
  10. CNH Industrial NV
  11. Construcciones y Auxiliar de Ferrocarriles SA
  12. Delek Group Ltd.
  13. Elbit Systems Ltd.
  14. Elco Ltd.
  15. Electra Ltd.
  16. Energix-Renewable Energies Ltd.
  17. Enlight Renewable Energy Ltd.
  19. HeidelbergCement AG
  20. Israel Discount Bank Ltd.
  21. Mizrahi Tefahot Bank Ltd.
  22. Partner Communications Co. Ltd.
  23. PayPal Holdings, Inc.
  24. Shapir Engineering & Industry Ltd.
  25. The First International Bank of Israel Ltd.
  26. Volvo AB

Richard Goldberg is a senior advisor at FDD, directs FDD’s International Organizations program, and contributes to FDD’s Center on Economic and Financial Power. He previously served on the White House National Security Council as deputy chief of staff to former U.S. Senator Mark Kirk and as chief of staff to former Illinois Gov. Bruce Rauner. Follow him on Twitter @rich_goldberg. Follow FDD on Twitter @FDD. FDD is a nonpartisan research institute focusing on national security and foreign policy.


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