When Human Rights Disappear from ESG Ratings: The Gaza Case

Trust in ESG ratings is a fundamental pillar to guide investors' choices, however recent revelations cast a shadow on the reliability of these assessments, especially when it comes to human rights in conflict areas. An investigation, conducted by Follow The Money and relaunched in Italy by Il Sole 24 Ore and IrpiMedia, has brought to light significant changes in the ESG criteria adopted by two giants in the sector: MSCI and Morningstar Sustainalytics .

According to the documents, MSCI has removed from its analysis the negative human rights impacts related to the Israeli occupation of the Palestinian territories . In parallel, Morningstar has excluded the area of ​​the Israeli-Palestinian conflict from its social assessments altogether. The changes, motivated by political and lobbying pressure, have led to a surge in ESG ratings of companies previously under scrutiny for their involvement in controversial activities.

A case in point is Caterpillar , which has historically been targeted for selling bulldozers to the Israeli army, which are used in the demolition of Palestinian homes. Until 2023, MSCI assigned the company a low score in the “human rights” component. But starting in August 2024, the report omitted any reference to the Gaza context, assigning a maximum ESG rating of 10 out of 10.

Motorola , a supplier of monitoring technology in Israeli settlements, is similar. Previously flagged for “severe controversies,” the company saw its rating rise from “A” to “AA.”

When asked by the journalistic consortium, MSCI denied methodological changes , saying that outdated disputes are archived. However, the lack of transparency on the most recent violations raises legitimate concerns.

Morningstar has taken a different approach, having openly admitted the influence of external pressure , in particular from JLens, a financial group close to pro-Israel positions that aims to eliminate any “anti-Israeli bias” in ESG reports. Morningstar has therefore first changed the language, eliminating expressions such as “occupied territories” while at the end of 2024 it declared that it would exclude the conflict area from ESG analyses due to the difficulty of formulating “objective and consistent” assessments.

The implications of these choices are profound. In a market where ESG funds are worth over €2.8 trillion – 84% of which in Europe – the credibility of the metrics is essential. Yet, MSCI and Morningstar, which together cover 80% of ESG data globally, now seem to be faltering precisely on the consistency front. The lack of official commentary from Morningstar only fuels further questions. The risk is that the “ESG” label will be emptied of meaning just as demand for ethical and responsible investments is growing.