Investor concerns grow over exclusion of Palestinian human rights from ESG screening

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🗞️ Driving the news: Investor concerns are mounting over the exclusion of Palestinian human rights considerations from mainstream ESG (environmental, social, governance) screening
• Norway’s KLP, one of Europe’s largest pension funds, criticised Morningstar’s decision to stop analysing corporate involvement in disputed territories such as the Israeli-occupied West Bank, calling it “very concerning”
• This follows a UN call for companies to end dealings that may contribute to violations of international law

🔭 The context: In 2020, the UN Human Rights Council published a database of companies operating in Israeli settlements in occupied Palestinian territories, deemed illegal under international law
• Many ESG research providers, including Sustainalytics (owned by Morningstar), have included such data in their conflict-risk analyses
• However, Morningstar recently scaled back these screenings following pressure from pro-Israel groups and U.S. political figures, citing concerns over alleged bias in its methodologies

🌍 Why it matters for the planet: The controversy highlights growing tensions within ESG investing over how human rights risks in conflict zones are assessed, raising questions about the credibility and comprehensiveness of ESG ratings
• Robust social and governance assessments — including in sensitive geopolitical contexts — are crucial to advancing the SDGs, particularly regarding human rights and responsible business conduct
• Weakening such scrutiny risks undermining investor confidence in ESG as a tool for accountability

⏭️ What's next: Investors, human rights advocates, and regulators are expected to intensify scrutiny of ESG data providers over methodological transparency and alignment with international law
• Institutional investors like KLP may push for alternative datasets or industry standards that better incorporate conflict-related human rights risks
• Morningstar (see sustainability performance) has indicated it is reviewing its approach amid criticism, with further clarifications or policy updates anticipated in the coming months

💬 One quote: “It is very concerning if ESG data providers stop highlighting corporate involvement in situations that breach international law — that’s fundamental to responsible investment.” — Kiran Aziz, Head of Responsible Investments, KLP

📈 One stat: 112 companies were listed by the UN in its 2020 database of firms allegedly contributing to Israeli settlement activities in occupied Palestinian territories

See on illuminem's Data Hub™ the sustainability performance of Morningstar, and its peers MSCI, and S&P Global

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