[Editor’s Note: The article has been updated to include a Morningstar spokesperson’s comments and additional explanation from CEO Kunal Kapoor and Executive Chairman Joe Mansueto.]
Is ESG antisemitic? Republican officials in 18 states say yes—and sent a letter on Aug. 25 to Morningstar CEO Kunal Kapoor expressing their “serious concerns” that the research and consulting giant is negatively rating firms that do business with Israel.
“Kapoor emphatically denied any alignment with the BDS movement. A Morningstar spokesperson reiterated Monday, ‘Morningstar does not support the anti-Israel BDS campaign.'”
Accusing the company of aligning with the Boycott, Divestment, Sanctions (BDS) movement through its Sustainalytics subsidiary, the officials claim, “it is clear to us that the environmental, social, governance (ESG) research and ratings products offered by Sustainalytics are deeply infused with anti-Israel bias.”
“Companies, investors, and asset managers—including those contracted with our states—rely upon Morningstar and other firms for unbiased financial research,” the heavily footnoted letter reads. “As state financial officers, we have a fiduciary duty to ensure that the financial research our respective states rely upon is based on sound financial principles rather than BDS movement tactics meant to isolate Israel in the world economy and breed prejudice against the Jewish people.”
Fox News reported that South Carolina State Treasurer Curtis M. Loftis Jr. went so far as to threaten to cut ties with Morningstar if the situation isn’t corrected.
Morningstar ’emphatically’ responds
However, Reuters reported in June, before the latest letter was sent, that “Morningstar’s Sustainalytics unit will take …steps recommended by law firm White & Case LLP, such as making its research more transparent and adding an ombudsperson.”
While Kapoor conceded the company was “overly dismissive” previously about concerns from Jewish groups, Sustainalytics President Bob Mann told the news service, “Any notion that we’re not objective, not transparent, and not consistent is important to us.”
“We stated then—and reaffirm today—that neither Morningstar nor Sustainalytics supports the anti-Israel BDS campaign,” Kapoor and Morningstar Executive Chairman Joe Mansueto said in a June letter posted to its website. “However, in retrospect, our initial review was overly dismissive of the serious bias concerns raised by the organization JLens [Jewish Values-Based Investing], the Illinois Investment Policy Board (IIPB), and other entities. We consider bias unacceptable in any form and concluded that the concerns warranted a thorough, independent review.”
In a letter to The Wall Street Journal editor that same month, Kapoor also “emphatically” denied any alignment with the BDS movement. A Morningstar spokesperson reiterated Monday, “Morningstar does not support the anti-Israel BDS campaign.”
Brewing backlash
High-profile investors and politicians have spoken out against ESG recently, fueling a backlash against the popular investment strategy.
Former Vice President Mike Pence called for states with large employee pension funds to “rein in” massive investment firms and their ESG activity.
Billionaires Peter Thiel, Elon Musk, and Charlie Munger have each recently criticized ESG, and both The Wall Street Journal and The New York Times published pieces noting the political blowback from Republicans.
“As Americans who strongly support Israel – a close democratic ally of the United States—we are also deeply disturbed by a corporate culture at Morningstar that would allow researchers to rely on sources aligned with the anti-Semitic BDS movement,” the letter noted. “We urge Morningstar to take corrective action immediately to terminate all research and ratings products that treat Israel-connected companies differently than companies operating in other free democracies.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
I applaud Treasurer Loftis for his actions and hope he is successful.
Loftis was one of the first critics of wasteful state pension plan spending on bogus investment management fees and his work help set the mark for the nation’s state pension system.
The far Left has manipulated the investment process for too long and it should stop. Freedom should not be a casualty of ESG.