MSCI Continues Anti-Israel ESG Ratings as Morningstar Removes Its Own

The reliability of the New York-based investment research firm MSCI’s environmental, social, governance (ESG) ratings for thousands of U.S. and international enterprises is undergoing critical scrutiny as a result of its negative assessments of Israeli companies and banks. Under pressure from the Illinois Investment Policy Board, MSCI in early January abandoned its negative ratings of two U.S.-based companies conducting business in Israel — Motorola Solutions and Caterpillar — yet continues to impose politically-motivated, anti-Israel ratings on four Israeli banks and one Israeli defense contractor. At the same time, however, the Chicago-based Morningstar, Inc., a competing ratings agency, removed all of its remaining negative ESG ratings targeting the same Israeli companies.

MSCI’s Controversy Warnings Are Subjective

MSCI flags companies with ESG “controversies” on a scale from minor to moderate to severe to very severe. “Severe controversies” were imposed by MSCI on five Israeli companies — Bank Hapoalim, Bank Leumi Le Israel, Israel Discount Bank, Mizrahi Tefahot Bank, and Elbit Systems — using anti-Israel sources and assumptions

MSCI’s sources include the Palestine Chronicle, a news site whose Gaza-based correspondent held captive in his own home three of the Israeli hostages abducted during the October 7, 2023, Hamas onslaught. Other sources known for their anti-Israel bias that were nonetheless invoked by MSCI include the UN Human Rights Council, Amnesty International, and Human Rights Watch.

MSCI penalizes Elbit Systems for having constructed the “smart barrier” on the Gaza border that Hamas overran during its invasion of southern Israel. The ratings company also penalizes Israeli banks for servicing residents and businesses in Judea and Samaria, thereby punishing companies for providing services for Jews based solely on where they live. Notably, MSCI does not impose human rights-related controversies on Chinese banks that operate in the Xinjiang Autonomous Region, where Beijing is committing genocide against the Uyghur minority.

MSCI has not explained how it justified removing anti-Israel ESG controversies from Motorola and Caterpillar while maintaining such controversies for Israeli companies. The arbitrary nature of the decision to remove those ratings — apparently prompted by the Illinois investigation — further weakens any MSCI argument that its anti-Israel ratings are metric-based and objective, rather than politically-motivated and wholly subjective.

Morningstar Removed Its Remaining Controversy Warnings From Israel-Linked Companies

Morningstar had previously attached similar controversies to companies operating in Israeli-controlled territories based in part on information from biased sources. In 2021, Morningstar hired an outside firm to investigate claims that its ESG research subsidiary was negatively rating companies doing business in Israel. Subsequently, a group of attorneys general from 18 states launched a consumer fraud investigation.

In February 2023, Morningstar again claimed to have addressed “anti-Israel bias concerns” in its research. But continued anti-Israel ESG ratings prompted the State of Florida to adopt new legislation to specifically target BDS disguised as ESG assessments. Florida later launched its own investigation and announced it would divest from and cut off state contracts with Morningstar. As of early 2025, Morningstar removed its controversy warnings from companies operating in Israeli-controlled territories.

More Investigations Could Force MSCI to Reverse Course

MSCI’s use of ESG ratings to inflict harm on Israeli companies based on sources and assumptions linked to the BDS campaign likely constitutes a “boycott” of Israel as defined by states like Florida, New Jersey, and New York. While Illinois was successful in using its state law countering the antisemitic “Boycott, Divestment, Sanctions” (BDS) campaign targeting Israel to compel MSCI to halt its blacklisting of US-based companies, additional state and federal investigations may be needed to compel MSCI to remove its negative ratings from the remaining Israeli firms.

Richard Goldberg is a senior advisor at the Foundation for Defense of Democracies (FDD), where David May is a research manager. For more analysis from the authors, subscribe HERE. Follow the authors on X @rich_goldberg and @DavidSamuelMay. Follow FDD on X @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.