Activist company

Illinois vote on investment firm divestment targeting Israel will be postponed again

Last December, the Unilever conglomerate found itself in the crosshairs of an investment board in Illinois. Every member of the board pulled the trigger, and as a result, the state disengaged from Unilever and its Israel-boycotting subsidiary, Ben & Jerry’s.

Another company has found itself flagged for withdrawal, even though it says it wants to put things right.

In 2020, Chicago-based, multi-billion dollar investment research firm Morningstar acquired a full stake in Sustainalytics, a Netherlands-based investment research firm. Sustainalytics has been accused of expressing an anti-Israel bias in its research results. Unlike Unilever, which declined to engage substantively with the seven-member Illinois Investment Policy Board, Morningstar decided to maintain an open dialogue with the IIPB and opened an investigation into the matter.

The IIPB meeting held its quarterly meeting on Monday, and Morningstar’s attorney made a strong enough case to push a vote on the matter to the next meeting in June.

“There is a black and white contrast between how the two companies have handled this. Morningstar has retained the services of an outside attorney to review its policies and procedures and, at the end of this process, make recommendations. This is head and shoulders above what Unilever has done,” Andrew Lappin, chairman of the board’s committee on restrictions on boycotting Israel, told JNS.

A study claimed that in Sustainalytics analytics, companies that operate in Israel are labeled with higher negative controversy ratings – more than other companies based in conflict zones like China or Tibet, with its algorithm taking into account political factors out of proportion to commercial considerations. . The company was part-owned by PGGM, the Dutch pension that touted its own divestment from Israeli banks in 2014, but then reserved its move in 2019. Many Sustainalytics scores for Israeli companies are heavily based on the big blacklist arson of Israel-based companies compiled and published directly by the United Nations Human Rights Council – the only such list compiled by that body.

A report compiled by Pro-Israel Activities noted that while Israel was one of 71 countries in a region encompassing Africa and the Middle East, it accounted for 50% of the companies Sustainalytics focused its negative rankings on – a conclusion that Morningstar would have refused. to offer a defense.

Currently, Illinois prohibits investments in certain companies that do business with Iran and Sudan, as well as in companies that boycott Israel. In 2015, Illinois became the first US state to pass such a law in order to counter the anti-Israel BDS movement. According to Illinois law, boycotting Israel means “engaging in politically motivated actions intended to penalize, inflict economic harm, or otherwise limit business dealings with the State of Israel or companies based in the State. of Israel or in controlled territories”. by the State of Israel.

The IIPB – a seven-member board made up of a mix of unpaid governor appointees and representatives from major pension systems – was created to ensure the state does not invest public money in entities contrary to this law.

“They know what the allegations are”

Lappin said after Monday’s meeting that Morningstar had yet to provide the board with its findings.

“At the last meeting, they had just embarked on this investigation. They understood that their schedule was as short as possible. So I can’t imagine this dragging on any longer, without a good faith effort on their part to acknowledge and recommend a policy change,” he said.

Lappin said at the December meeting that the IIPB would be “fully justified in adding Morningstar to the state’s prohibited investment list today” before granting Morningstar a reprieve to handle its investigation, which he only agreed to do about two weeks before it was set up. blacklisted in Illinois alongside Unilever. Morningstar would be the first US-based company to make the list of companies boycotting Israel, joining 40 other companies around the world.

Morningstar first came to the board’s attention through JLens, an investor network that examines impact investing through a Jewish lens. According to its website, the organization claims to serve “as a bridge between the Jewish community and the fields of socially responsible investing (SRI) and corporate social responsibility (CSR).

Alarmed by Morningstar’s impending acquisition of Sustainalytics, JLens approached Morningstar management, only to be removed before the deal was completed. A few months later, JLens began its own dialogue with Morningstar, which culminated in January 2021 with JLens placing Morningstar on its “Do Not Invest” list and publicly accusing the company of supporting BDS.

That same month, at Morningstar’s annual shareholder meeting, JLens presented a shareholder proposal that would require Morningstar to report on the risks of its “economic activism.” The proposal was going nowhere, and two months later, Morningstar announced that an internal review had found JLens’ claims to be false, indicating that there was no systemic bias against Israel in the security system. Sustainalytics rating.

JLens’ Jewish Advocacy Strategy, an investment strategy with more than $100 million in assets established by Jewish institutional investors, has put Morningstar on its own blacklist and refuses to hold stock in the company.

“JLens has presented a series of fairly detailed memos that I suspect will serve as the basis for the answers Morningstar’s report will seek to provide. These are the same questions that have been raised over the last year, a year and a quarter. So they know what the allegations are,” Lappin said.

The question is whether after two years of ignoring and deflecting the issue, Morningstar finally agreed to act simply because of the potential for divestment or if there was more at stake.

“I believe they were approached very quietly by members of the community who told them this was a serious issue that needed to be addressed. Look, they acquired Sustainalytics not too long ago, and I consider that a pre-existing condition within this company,” Lappin explained. “Morningstar is now making a real effort to diagnose and resolve the issue. If we don’t hear anything complete or substantial from them by June, the discussion will be different. But the impression I got from their advice externals is that the effort is sincere and sincere.

Before Unilever, the board last took action in 2018, when online accommodation market Airbnb announced it would remove listings in Judea and Samaria. Airbnb avoided the Illinois divestment by reversing its decision and certifying to state regulators in 2019 that it was not violating the boycott of Israel restriction. There are currently 40 entities listed by the IIPB as companies boycotting Israel. Six of them are currently in talks with the IIPB over the matter, according to the council’s website.

“Commercial factors can legitimately prevent companies from entering Israel”

Morningstar is a somewhat unique case, as the company itself does not boycott Israel or Israeli-controlled territories, and does not explicitly call for a boycott. But this represents a relatively new battleground in the Israeli boycott movement. As socially responsible investing becomes more popular, pro-Israel supporters worry that companies like Morningstar will succumb to pressure from the BDS movement and add Israeli companies and companies that do business with Israel to its negative rating lists.

The fact that a company that advises its clients on the potential pitfalls of doing business in Israeli-controlled territory, without directly calling for a boycott, can still violate BDS laws presents an interesting test of how far the arm of some of these laws can achieve.

“The board is going to have to make a conclusion based on facts. Just because Sustainalytics doesn’t explicitly call for boycotts of Israel or Israeli-controlled territories for political or social reasons like Ben & Jerry’s doesn’t mean they haven’t broken Illinois law,” Marc Stern, a lawyer and leading expert in BDS-related legislation, told JNS. “Commercial factors can legitimately prevent companies from entering Israel. Politically motivated factors are something different when it comes to many of these boycott laws in various states. The Illinois board will have to make a decision.

More than 30 states have some form of anti-boycott laws, executive orders or other Israel-related investment policies, and many apply the standard to any area under Israeli control, including disputed territory in Judea and Samaria and any part of Jerusalem.

In September, Arizona sold $93 million in Unilever bonds and announced plans to sell the remaining $50 million invested in Unilever. A few days later, Texas launched a process that will likely end with the withdrawal of $100 million from state pension funds invested in Unilever. Florida, which has invested about $139 million in Unilever, announced in October that it would stop buying shares in the company. Earlier this month, New Jersey began withdrawing $182 million in Unilever stocks and bonds. (Illinois’ investments in Unilever are reportedly comparable to New Jersey’s, though exact numbers are still being researched by individual Illinois pension funds.) Israel.

New York state comptroller says decision in late October to divest state pension fund of about $111 million in Unilever stakes was made to protect Israel’s economy – and, therefore, the massive state holdings in Israeli companies – of the BDS movement. In November, New York Governor Kathleen Hochul opened a 90-day window for Unilever to reverse its position before the state ceases investments of any kind in the company. The Hochul office did not respond to repeated inquiries from the JNS as to the current status of this process. Last week, the Colorado Public Employees’ Retirement Association, which manages a $61 billion public pension fund, announced that it had filed to divest from Unilever.

Lappin told JNS that after the Unilever firestorm, he expects things to slow down once the Morningstar issue is resolved. There were no other businesses or items on Monday’s IIPB Israel committee agenda outside of Morningstar.

“It is going to be difficult and very important to overcome. So hopefully we get there,” Lappin said. “But I’m happy to say there’s nothing else on the horizon at the moment.”