Morningstar has retained two external experts to provide advice on the research that Sustainalytics conducts on firms operating “in the context of the Israeli-Palestinian conflict area (IPCA)”.
The move follows the publication last year by the data giant of the results of an investigation by law firm White & Case into claims of anti-Israel activities at its ESG data and ratings subsidiary.
The law firm found “no evidence” that Sustainalytics products recommended or encouraged divestment from Israel, or that would suggest a “pervasive or systemic bias against Israel across Sustainalytics products, including the Sustainalytics ESG Risk Rating”.
However, its Human Rights Radar was found to have a “latent, disproportionate focus on the Israeli/Palestinian conflict, which results in biased outcomes”. The product, which provided information on companies operating in regions where Sustainalytics believed serious human rights violations were taking place, was discontinued by Morningstar in response to recommendations by White & Case.
Following the investigation, Morningstar announced a swathe of measures at Sustainalytics. These included a commitment to stop using UN Human Rights Council data in its research products, as well as replacing the terms “Occupied Palestinian Territory” or “occupied territory” with geographic names “eg West Bank, East Jerusalem”.
At the time, the firm also said it would seek advice regarding its assumptions, sources and use of language from “independent, recognised experts in international law, including international human rights law, who are well versed in the policy, security, history, and religious and legal context of the Israeli-Palestinian dispute”.
Ten months later, the first two experts have been appointed.
The first is Michael A Newton, director of the international legal studies programme at Vanderbilt University Law School and serving professor of the practice of law and professor of the practice of political science.
According to Morningstar’s website, Newton is an expert on terrorism, accountability, transnational justice, human rights and conduct of hostilities issues. He has also provided expert assistance to judges, lawyers, legislatures, governments and policymakers around the world, including the State Comptroller of Israel.
The second appointee, Alejandro Wolff, is a retired American diplomat who served as US ambassador to Chile from 2010 to 2013. He previously served as US ambassador and deputy permanent representative to the UN from 2005-10.
Newton and Wolff will advise Morningstar on the assumptions that underpin Sustainalytics’ assessments of “whether business activities conducted in the context of the IPCA create material ESG risk for the firms concerned” and the sources consulted in making those assessments and cited in research reports.
They will also advise on the language used to convey the nature of a company’s controversial business activities, the impact those activities have on stakeholders, and the risk those impacts create for the company concerned.
“Given the complex history of the Israeli-Palestinian conflict, additional review of our processes by a third-party expert will validate or provide advice where needed,” Morningstar said in a statement.
It is expected that the experts will start work later this year, with the goal of providing their recommendations in the first half of 2024.
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