MSCI’s Anti-Israel ESG Ratings Merit State and Federal Investigations

The New York-based MSCI, Inc., imposed “severe controversy” environmental, social, and governance (ESG) ratings on two Illinois-based companies for doing business in territories controlled by Israel, the Jewish News Syndicate (JNS) reported this week. The two companies, Motorola Solutions and Caterpillar, which are longstanding targets of the anti-Israel boycott, divestment, sanctions (BDS) campaign, join a longer list of Israel-based companies negatively impacted by MSCI, including four Israeli banks and defense contractor Elbit Systems.

In its latest article about MSCI as well as earlier reporting, JNS has revealed that MSCI uses several anti-Israel sources to justify these negative ESG ratings, including Human Rights Watch, the United Nations Human Rights Council, Amnesty International, Who Profits, Pax Christi, Jewish Voice for Peace, Al-Jazeera, War on Want, and even the Palestine Chronicle, one of whose writers, according to JNS, “both supported Hamas and held Israeli civilian hostages in his home.”

The UN Human Rights Council’s blacklist of Israeli-connected companies is a pillar of the BDS campaign. Who Profits is an organization that initiates BDS campaigns, while Amnesty and Human Rights Watch have falsely libeled Israel as an apartheid state. Al-Jazeera employed a Hamas terrorist. Pax Christi and Jewish Voice for Peace both advocate for BDS and routinely denounce Israel.

More than 30 states have adopted laws or executive orders related to boycotts of Israel. Some states prohibit contracting with companies that boycott Israel, while others mandate divestment of state funds, including pension fund investments, from such companies. The law in Illinois, where Motorola and Caterpillar are headquartered, mandates state divestment from any company that boycotts Israel, defined as “engaging in actions that are politically motivated and are intended to penalize, inflict economic harm on, or otherwise limit commercial relations with the State of Israel or companies based in the State of Israel or in territories controlled by the State of Israel.”

On its face, the premise of ESG ratings is to encourage investors to put their money into companies that have higher ratings and lower controversies and to divest funds from companies with lower ratings and higher controversies. This, in turn, is meant to induce companies to change their business practices to receive higher ratings and remove their controversy labels.

MSCI does not hide the intent of its ESG ratings or how investors use them. On its website, MSCI notes that ESG investors believe that “Our investments should reflect our values” and indicates that MSCI ESG ratings can help “Align portfolio with investor’s ethical or political values.” “Our clients can and do use ESG ratings alongside additional layers of ESG, impact and climate metrics to inform their decisions and pursue the objectives and outcomes they desire,” MSCI states.

By imposing ESG “severe controversy” ratings on companies operating in Israel and negatively impacting their overall ESG score in response to BDS campaigns waged against those companies, MSCI is knowingly inflicting economic harm on those companies on a discriminatory basis. JNSalso previously reported that while four Israeli banks are targeted by MSCI with “severe controversies” for operating in Jewish areas of Judea and Samaria, no such controversies appear for Chinese banks, including one known to operate in Xinjiang, where China is committing genocide against a Muslim ethnic minority.

States with anti-BDS laws should consider applying those laws to MSCI, thereby either placing the company on the states’ prohibited investment lists or terminating state contracts with the firm until MSCI removes its controversy ratings on Israel-based companies.

Federal officials might consider asking the Securities and Exchange Commission to investigate whether MSCI’s practices violate any rules. Congress should also consider legislation to prohibit federal contracts with firms that boycott Israel. Given MSCI’s federal contract business, that would give MSCI and companies like it a strong reason to reform their practices.

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