Arizona treasurer cautions investment firm for anti-Israel stance | Arizona

(The Center Square) – Arizona Treasurer Kimberly Yee told Morningstar Inc. that it has 30 days to prove that it is not violating Arizona law regarding its stance on Israel.

If Morningstar cannot prove that it is actively boycotting the State of Israel, it will be placed on the Arizona Treasury’s prohibited investment list.

State law says a public entity or public fund cannot enter into contracts or invest capital with companies or people involved in the boycott.

The Arizona Treasurer’s office said Morningstar’s environmental, social and corporate governance (ESG) subsidiary, Sustainlytics, uses “anti-Semitic and anti-Israel sources to negatively influence the results of companies doing business in Israel,” according to a press release from the State Treasury Office.

Treasurer Kimberly Yee condemned Morningstar in a press release issued by her office.

“As Treasurer, it is my job to ensure that Arizona does not do business with companies that are trying to undermine Israel’s economy and violate Arizona’s anti-BDS law,” Yee said in a press release. “Morningstar’s ESG rating arm, Sustainalytics, appears to be violating Arizona law by adversely affecting ratings of companies doing business in Israel.”

In her letter to CEO Kunal Kapoor, Yee said Morningstar must provide a “written submission,” saying it will not engage in any further anti-Israel boycotts in the future, other than providing evidence that its ratings ESGs do not violate state law. .

“As Arizona’s Head of Banking and Investments, I stand with Israel and will not allow taxpayer dollars to fall victim to the clever political craft of ESG ratings. ESG ratings are a political scoreboard, not a financial scoreboard,” Yee said in the press release. “I will not allow companies to promote policies that are anti-Semitic and discriminatory efforts against Israel, which is a friend and ally America’s oldest and an important trading partner with Arizona.”

The company has previously denied links to the boycott divestment sanctions (BDS) movement.

The morning star issued a public letter on June 2, 2022, saying it hired an outside company to investigate Sustainalytics’ possible connections to the BDS movement and denies that such a connection exists.

“White & Case has completed that investigation and documented its findings and recommendations in a 117-page report that we publishing as a whole. It identifies limited areas of bias that are more exceptional to our scope of work but, nevertheless, do not meet Morningstar’s standards,” Morningstar wrote.

Morningstar said White & Case determined that:

  • There was no evidence that Sustainalytics products recommended or encouraged the sale from Israel.
  • There was no evidence of widespread or systematic bias against Israel in all of Sustainalytics’ products, including Sustainalytics’ ESG risk assessment.
  • A Sustainalytics product, Human Rights Radar, exhibited bias in its results by overrepresenting firms linked to the Israeli-Palestinian conflict. Human Rights Radar is a stand-alone product aimed at providing information on issuers involved in regions of the world where serious human rights violations are suspected to occur. It also sometimes used inflammatory language and failed to provide source attribution clearly and consistently.
  • Although not widespread, the investigation found scattered instances of processes and procedures that could be improved to address and mitigate the potential for implicit or confirmation bias.

Morningstar said it took several actions in response to the report.

“Based on these findings, White & Case made various recommendations in the report, which we have decided to adopt in full,” the company wrote. “Morningstar has discontinued Human Rights Radar, and additional steps we are taking include, but are not limited to: (1) embracing greater transparency regarding the sources of Sustainalytics’ research and assessment methodology, ( 2) monitoring our internal processes to ensure greater consistency and adherence to our methodology, (3) adopting a style guide to ensure all research products are free of biased terminology, and (4) discontinuing of further research commissioned on behalf of clients.”

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