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Cruz and Blackburn slam ESG ratings in letter to Commerce Department
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The Biden administration is under pressure from Congress to more actively police companies that participate in boycotts of Israel, according to a letter sent Wednesday to the Commerce Department and obtained by the Washington Free Beacon.
Sens. Ted Cruz (R., Texas) and Marsha Blackburn (R., Tenn.) say the administration “is not taking sufficient action to ensure that American companies are aware of the criminal, financial, and reputational risks of engaging in unsanctioned boycotts” of Israel and other friendly countries.
The letter comes amid a growing controversy surrounding a financial ratings product known as the Environmental, Social, and Corporate Governance (ESG) framework. ESG ratings, which are meant to guide investors, examine a company based on its social values and tend to unfairly target Israel as a result of the country’s conflict with the Palestinians. Cruz and Blackburn maintain that financial firms providing ESG ratings that negatively impact Israel are in violation of federal and state anti-boycott laws, which were put in place to isolate the Boycott, Divestment, and Sanctions (BDS) movement, an anti-Semitic effort to wage economic warfare on the Jewish state.
The senators want Commerce Secretary Gina Raimondo to “more robustly engage such companies to make them aware of the risks, which range federal statutes and state prohibitions,” according to the letter, which cites financial giant Morningstar as an example of a company that could be running afoul of federal law. Morningstar, one of the largest U.S.-based financial services firms, has been battling accusations it supports the BDS movement through its ESG research arm, Sustainalytics. While Morningstar has denied the accusations, experts say Sustainalytics builds its ratings using materials authored by anti-Israel groups that support the BDS movement.
“Sustainalytics has echoed and amplified attacks by boycott advocacy groups against companies that do business with Israel,” Cruz and Blackburn state in their letter. “Advocates of economic warfare against Israel have increasingly sought to use ESG criteria as pretexts for boycott advocacy.”
The Commerce Department must become more involved in warning companies like Morningstar that they could be in direct violation of federal anti-BDS laws. “We are concerned that confidence is misplaced, and that the Commerce Department is not sufficiently engaging Morningstar and similar companies,” Cruz and Blackburn write. “The ratings and implicit advocacy from Sustainalytics come remarkably close to black-letter violations” of federal law.
The Commerce Department, they note, “is charged with ensuring American companies are aware of these risks and working with them to mitigate and end any exposure.”
The entire ESG ratings industry, Cruz and Blackburn say, is infected with anti-Israel bias that is fueled by the BDS movement as part of its efforts to turn Israel into a pariah state and deter investors.
“Companies that rely on ESG ratings in their business decisions have minimal transparency into the details, let alone motivations, behind how the ratings were set,” the lawmakers write. “The practice introduces exposure to American anti-boycott laws along the entire chain, and most acutely for the firms opaquely designing and setting the ESG criteria.”
Morningstar, which purchased Sustainalytics in 2020, hired an outside law firm to investigate allegations of anti-Israel bias in its products. The report, performed by the law firm White and Case, found instances of bias in some of Sustainalytics’s products. This includes the company’s reliance “on groups committed to boycotting Israel, including Who Profits, Human Rights Watch, and Amnesty International,” according to Cruz and Blackburn.
Sustainalytics was also found to rely on information produced by the Office of the U.N. High Commissioner for Human Rights, a body known for its anti-Israel advocacy. “The United States government has regularly and across administrations condemned that [Office of the High Commissioner’s] list as an anti-Semitic effort to single out and delegitimize our Israeli allies,” the lawmakers write.
Other materials used by Sustainalytics in its ratings products included “anti-Semitic advocacy platforms, including Electronic Intifada website, BDSMovement.net, Iran Daily, and the Venezuelan regime-sponsored television network Telesur.”
Morningstar says that Sustainalytics no longer relies on these materials and that it has implemented a series of reforms to eliminate outstanding anti-Israel bias.
Cruz and Blackburn, however, say the White and Case report did not adequately address the systemic anti-Israel bias built into ESG products like those provided by Sustainalytics.
“The law firm did not take the next, obvious step of noting that comparing Israel to, for instance, the Chinese Communist Party, which is conducting an ongoing genocide against Muslim and other religious minorities, is grotesque and is itself evidence of systemic bias,” the senators write. “The report also did not make the equally obvious point that incorporating the advocacy and targets of pro-boycott organizations guarantees the production of pro-boycott bias.”
Morningstar through a spokesman has told the Free Beacon that it in no way endorses the BDS movement and is undertaking efforts to ensure none of its financial products unfairly target Israel.
Published under: Anti-Semitism, BDS, Department of Commerce, Gina Raimondo, Israel, Marsha Blackburn, Ted Cruz, woke
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