Recently, the Guardian, a left-leaning newspaper based in the United Kingdom, reported on the purchase of Israeli bonds by U.S. states. The story followed previous reporting by several other outlets, pointing out how states had been quick to snap up bonds after Israel undertook a new round of bond issuances to raise capital. But the Guardian took a different tack, zeroing in on Republican led states, particularly states whose financial officers are affiliated with the State Financial Officers Foundation (SFOF), and attempted to tell a story of state officials acting hypocritically by making investment decisions.
The Guardian’s contention is that by making these investments, state officers had contradicted their own calls to take politics out of investing state funds. But the decision to invest in Israel, America’s best ally in this critical region of the world isn’t a Republican or Democratic decision. As other outlets made clear, both red and blue states invested quickly in this new round of bond sales.
But investing in Israel isn’t a new phenomenon. States have invested in Israeli government debt for decades and they’ve done it for good reason.
States are buying Israeli debt because it’s a good investment, not because they’ve adopted some radical worldview. The rates of return on Israeli bonds are highly competitive with similar instruments around the world. Indeed, many of them outperform US Treasuries. While the 5-year US Treasury rate is 4.25%, Israeli bonds of the same maturity offer a return in excess of 5%.
States are also investing in Israel because they know it’s safe. Though the country is barely 75 years old, ratings last year put its economy 4th among countries in the OECD, which represents the top performing economies worldwide. Despite speculation that the ongoing war might cause a downgrade in Israel’s credit rating, it has held firm – in no small measure because of its success in raising capital over the last seven weeks.
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Make no mistake, by investing in Israel, state financial officers are adhering to their fiduciary duty.
But also, investing in Israel is the right thing to do. The money raised will go to help rebuild communities in the south of the country that were destroyed by Hamas after its horrific terrorist attack on October 7th. It will also help reimburse costs incurred by hospitals treating the wounded throughout the country. Since when did aiding a longstanding ally, and achieving a solid return while doing so, become politically fraught?
Would the Guardian be making the same critique if these states were buying Ukrainian sovereign debt? Of course, not. And that’s precisely why the Guardian’s critique is emblematic of the kind of politicized view that state financial officers have been railing against for the last two years. The source of their ire and the animating force behind the Guardian’s critique are the same: ESG, this phenomenon which introduces non-pecuniary standards for making financial decisions.
Whether it's focused on climate considerations or attempting to force social outcomes, the push toward ESG investing subordinates the fiduciary responsibility of maximizing investors’ returns to the goal of achieving a radical political agenda. As I’ve argued before, activists use ESG to bypass the legislative and judicial process, to impose policies that would never pass public scrutiny.
And ESG is effectively joined at the hip with the boycott, divestment, and sanctions (BDS) movement. At its core, BDS is aimed at delegitimizing the Jewish presence in Israel through academic, cultural, and economic initiatives that punish people and firms for doing business with Israel.
In essence, the BDS movement works in tandem with the aims of U.S.-designated foreign terrorist organization Hamas. But its proponents wrongly label it a matter of social justice, hence its connection to ESG.
SFOF and dozens of its individual members have publicly chastised Morningstar for its role in supporting BDS through its negative ratings of firms operating in Israel. We’ve called out their tactics out as blatantly antisemitic and divorced from real economic indicators and thus an affront to their fiduciary duty. To date Morningstar has rectified 19 of 25 of those errant ratings.
Yes, members of the State Financial Officers Foundation stand with Israel, both in opposing the BDS movement and by investing in the sole democracy in the Middle East. Their providing capital to help rebuild a country ravaged by terrorism on a scale that is orders of magnitude beyond our 9/11. But these efforts have not been at the expense of the financial well-being of their constituents.
Assertions to the contrary by a foreign paper, spoon fed by the Center for Media and Democracy, a left-wing opposition research group awash in liberal dark money, should be seen for what they are, an attempt to smear the good work of conscientious elected officials for political purposes.
Because investing in Israel is good policy and good business.
Derek Kreifels is the CEO of the State Financial Officers Foundation
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