State Treasurer Curtis Loftis recently informed Morningstar that his office would not participate in the annual review and rating process for the state's 529 plan due to concerning reports that the firm's subsidiary, Sustainalytics, is negatively rating companies connected to Israel.
"Our state does not support businesses that are involved in the boycott, divestment, or sanctions of Israel. As such, we are unwilling to do business with Morningstar until we can be assured their decisions are based on sound financial data and investment policies, and not a radical agenda that has nothing to do with my fiduciary responsibility to maximize returns at a prudent level of risk for the benefit of our citizens," Loftis said.
Last month, Treasurer Loftis joined 17 state treasurers and auditors in asking that Morningstar take corrective action to terminate all research and ratings products that treat Israel-connected companies differently than other firms operating in a free democracy.
Additionally, 19 state attorneys general also expressed concerns regarding Sustainalytics and asked Morningstar for a response to the boycott, divestment and sanctions (BDS) issues raised in their Aug. 23 letter.
If Morningstar fails to provide proof that their business follows the South Carolina law that prohibits a business from "the boycott of a person or an entity based in or doing business with a jurisdiction with who South Carolina can enjoy open trade," the Treasurer's Office said it will terminate use of Morningstar products and services.
"The state constitution and code of laws make it clear that my responsibility is to the citizens of South Carolina, not to politically and financially motivated special interests. Elected officials from many states and both parties feel the same way, and it is time we begin a national conversation about resisting the powerful influences arrayed against the interests of our citizens," Loftis said.
South Carolina's 529 plan is sponsored by the state and administered by the State Treasurer's Office.
During Treasurer Loftis' term, the plan's diverse leadership team has grown assets to more than $5.2 billion with 214,000 accountholders.
The Jewish News Syndicate reported Morningstar has said repeatedly through statements that it “does not support the anti-Israel BDS campaign” and hired an outside law firm to review its practices under pressure from the Illinois Investment Policy Board.
The independent review commissioned by Morningstar “found neither pervasive nor systemic bias against Israel” by Sustainalytics, though it did make 40 recommendations to eliminate the potential for anti-Israel bias at the company, JNS reported.