A new memo from the Foundation for Defense of Democracies (FDD), based on direct access to investment firm Morningstar’s Global Access client platform, claims the company has “negatively rated companies doing business in Israel or territories controlled by Israel based solely on the fact that the companies do business in such areas.”

Chicago-based Morningstar financial services firm reached an agreement last month with a number of American Jewish and pro-Israel organizations to take additional steps to root out anti-Israel bias in the risk rating process used by its Sustainalytics subsidiary, a research and ratings firm specializing in environmental, social and corporate governance (ESG) insights.

The ESG movement ostensibly places value on investing in companies with good records on social issues, but critics accuse Sustainalytics of relying heavily on blatantly anti-Israel sources and processes to develop lower ESG ratings for companies doing business in and with Israel, thereby creating a roundabout boycott of the Jewish state.

Morningstar has consistently denied allegations that it participates in BDS.

FDD Senior Adviser Richard Goldberg said that after a series of engagements with Morningstar, he was given access for a few months to the company’s Global Access platform, which provides investors with “an executive dashboard that offers an overview of any company of interest.” All of Sustainalytics’ products are available through Global Access. Goldberg also participated in weekly dialogue sessions with Sustainalytics officials.

“The results of that engagement are documented in this analysis, with the conclusion being a pretty simple one, which is what we thought it was. It’s dead to rights BDS,” Goldberg told JNS.

He said he substantiated allegations that companies’ risk ratings are automatically downgraded due to their presence in Israel or Israel-controlled territories, pointing to Category 3 ratings assigned to Israeli telecommunications company Bezeq and select Israeli banks, which provide services to Jewish residents in areas of Jerusalem and Judea and Samaria labeled by the United Nations as occupied Palestinian territory.

When asked to justify the ratings, Goldberg said Sustainalytics replied that while “there is no evidence of a direct impact on human rights violations or the potential facilitation of human rights violations through customized products or services…Bezeq’s activities in the West Bank are a risk to its reputation, as many companies with involvement in the Occupied Territories face boycott, divestment and sanctions campaigns from civil society groups worldwide.”

According to Goldberg, that thought process suggests that the very existence of the BDS campaign is justification for damage to a company’s risk ratings, regardless of the company’s actual activities or human rights record. Goldberg noted that Chinese banks operating in Xinjiang or Chinese telecommunications companies that the U.S. prohibits investment in do not receive such high risk ratings.

The memo notes that Sustainalytics based a Category 3 risk rating for the Africa Israel Investments holding and investments company based in part on a report from a blatantly pro-BDS organization criticizing the firm for helping to construct a barrier between Israel and the Gaza Strip, which is controlled by terrorist groups bent on Israel’s destruction. Two other companies, including U.S.-based Motorola Solutions, were placed on a watch list by Sustainalytics for helping to maintain the security barrier protecting Israel’s eastern border, built in the 2000s to successfully stop a wave of Palestinian suicide bombings.

“When asked why Sustainalytics does not consider the reason why the security barrier exists and whether its existence is beneficial for human rights by saving lives, company officials insisted their job is to focus solely on risks and that a human rights risk exists in this activity,” Goldberg writes in his memo.

He told JNS that he released his analysis despite the October pledge by Morningstar to take additional steps because the statement the company released “was good in theory. But it has plenty of potential holes. And it doesn’t come with a single change in behavior.”

Goldberg said that all of the companies identified in his analysis as having received high risk ratings based solely on their operations taking place in “occupied Palestinian territory” still have the same controversial ratings attached to them, despite Morningstar’s pledge to stop using the term “occupied territory” in favor of geographic descriptors.

Goldberg said the company’s October 31 pledge to ensure its analysts do not presume a high risk rating should be given to companies merely for doing business “within the regions linked to the Israeli-Palestinian conflict or related to Israel’s defense against terrorism” has not resulted in any changes yet.

“I am of the opinion that while Joe Mansueto, the founder and chairman of Morningstar, may want to do the right thing, there are a lot of people under him who will fight tooth and nail to stop change from happening. To me, BDS is ingrained in the culture of Sustainalytics. These are people who do not believe they’re doing anything wrong,” Goldberg told JNS, noting the reluctance of Sustainalytics officials to disassociate from sources such as the United Nations Human Rights Council and the pro-BDS Who Profits organization.”

Morningstar reviewed Goldberg’s findings before publication, responding to him that his analysis “contains numerous factual inaccuracies and misrepresents our analytical processes and conclusions. Morningstar Sustainalytics does not harbor bias against Israel or support the BDS movement and the evidence overwhelmingly backs this up. We have shared this evidence with you and other members of the engagement team in good faith.”

Morningstar would not elaborate to Goldberg on which of his findings it thought to be inaccurate or misrepresentative and the company declined to comment further to JNS.

Notably, the FDD memo closed by noting that “this kind of systemic bias against Israel may exist inside other providers of ESG research and ratings.” Goldberg told JNS that he is looking into the ESG rating system employed by the New York-based MSCI finance company, and is in the beginning stages of that process.