Leading U.S. advisory firms Morningstar Sustainalytics and MSCI play a crucial role in guiding investors by assessing the ethical and financial implications of their investments. A key responsibility of these firms is to flag companies involved in human rights violations. However, under pressure from lobbying groups, both firms have reportedly altered their approach and no longer report on alleged abuses in the occupied Palestinian territories.

Globally, socially responsible investment (SRI) funds oversee around €3 trillion in assets. Morningstar and MSCI significantly influence the allocation of this capital, particularly in Europe, where mutual funds account for 84 percent of SRI investments.

An investigation by Follow the Money (FTM) into leaked documents revealed that MSCI has modified its reporting criteria. Morningstar Sustainalytics has also publicly acknowledged a shift in how it evaluates human rights concerns in the region.

FTM interviewed pension fund managers and legal experts to assess the broader implications of these policy changes for investors committed to ethical investing.

Kiran Aziz, head of responsible investment at KLP – Norway’s largest pension fund with over 80 billion euros in assets – called the change in policy a “breach of trust.” KLP, which excluded Caterpillar from its portfolio last year, uses both firms’ ESG reports.

“If they cannot provide information related to conflict areas such as the Israeli-Palestinian conflict … how can we trust that their other information on human rights is reliable?” she asked.

Rich Stazinski, executive director of the Heartland Initiative, a US-based nonprofit that helps investors manage human rights risks, agreed.

He said these firms were undermining the ability of investors to act in the best interests of clients.

“By producing datasets that ignore the UN and OECD guidelines on business and human rights, as well as international law, they also betray their own claims of contributing to better investment decisions,” Stazinski said.