21 Aug 2025 ESG Investor Reactions to the West Bank and Gaza Conflict: Regional Patterns and Strategic Distinctions (2024–2025)
The escalation of Israel’s military operations in Gaza and the continued expansion of settlements in the West Bank have brought renewed scrutiny of corporate involvement in these territories. However, the overall ESG investor response cannot be described as a full-scale sector-wide shift. Instead, what has emerged since 2024 is a cautious and fragmented reaction: a limited set of institutional investors, primarily in Northern Europe, have taken concrete action, while most global ESG investors remain silent or non-committal. Recent investigations even found that major ESG data providers“removed human rights concerns related to the Israel-Palestine conflict from their assessments,” effectively scrubbing Israeli-Palestinian issues from some “sustainable” investment ratings[1]. In this context, the few divestments and policy changes that have occurred serve as isolated examples of compliance with existing ethical frameworks rather than a coordinated industry-wide movement. Still, these moves are significant in spotlighting the reputational and legal risks that companies and investors face over the conflict, risks that are influencing behavior. However, the recent announcement by Norway’s Government Pension Fund Global to disinvest by some Israeli companies as well as international companies for reason of serious humanitarian crisis in Gaza, may represent a change of pace, given its leadership role on several responsible investors’ initiative in the past.
Northern European Funds Lead Targeted Divestments
While global ESG funds at large have not rushed to act, several institutional investors in Northern Europe have made high-profile divestments citing human rights and international law. These countries have long embedded responsible investment mandates into their sovereign and public funds, positioning them to respond where others have not:
- Norway: Norway’s largest pension insurer, KLP, has tightened its portfolio already in November 2023. At the beginning of the war in Gaza, KLP (which had already excluded dozens of companies linked to Israeli settlements in past years) stepped up its policies by divesting from U.S. defense contractor Oshkosh Corp. and Germany’s Thyssenkrupp, over concerns that military equipment sold to Israel “could be used in the war in Gaza”[7]. KLP’s ethics chief Kiran Aziz said such steps are necessary because if mainstream ESG data providers omit conflict-related risks, investors must seek alternatives to avoid “complicity in war crimes”[8].
- Denmark: Danish pension funds have emerged as proactive regional leaders in ESG divestment tied to the occupation. Velliv, a fund serving ~420,000 members, announced in late 2023 that it was withdrawing investments from 11 Israeli banks, explicitly citing the banks’ financing of settlement expansion as incompatible with the UN Guiding Principles on Business and Human Rights[9][10]. Velliv’s review was spurred by member inquiries after the Gaza war’s outbreak, and the fund’s spokesperson noted that providing loans for West Bank settlements “don’t comply with the UN guiding principles we rely on”[11]. The fund shed over 7,000 shares of the Israeli banks in question[10]. Similarly bold actions were taken by other Danish funds: PensionDanmark (800,000 members) had already started selling off about 75 million krone (~€10 million) in Israeli bank stocks at the start of 2024, after concluding those banks were likely financing illegal settlements[12]. Another fund, P+, subsequently divested from multiple Israeli banks as well as a cement company and surveillance technology firms linked to the occupation[13]. Even Denmark’s labor market funds joined in – Industriens Pension excluded seven Israeli banks, and the PKA fund added several banks to its exclusion list[14]. These actions in Denmark, many of which began before the Gaza crisis, were explicitly framed as upholding EU and UN policies that deem the settlements “illegal and highly problematic”[15][16].
- Ireland: In April 2024, Ireland became the first EU member-state to direct its sovereign fund to divest from companies operating in the occupied Palestinian territories. The Ireland Strategic Investment Fund (ISIF), managed by the NTMA, confirmed it would sell €2.95 million worth of shares in six companies – Israel’s five largest banks (Bank Hapoalim, Bank Leumi, Israel Discount Bank, Mizrahi Tefahot, First International Bank) and a supermarket chain (Rami Levy) – due to their activities in the occupied West Bank[17]. The divestment was carried out under ISIF’s Sustainable and Responsible Investment policy and was publicly endorsed by Ireland’s finance minister, who called it “the correct investment decision” on behalf of the state[18]. Ireland’s move signaled that human rights due diligence is increasingly being interpreted through the lens of international humanitarian law, with both Gaza and West Bank exposure now seen as material ESG liabilities.
It is worth noting that many of these exclusion decisions actually predated the most catastrophic phase of the Gaza war, they were driven chiefly by ongoing settlement expansion and associated legal concerns. Investors like KLP and PensionDanmark have emphasized that their exclusions were motivated by the illegality of settlements under international law rather than any single triggering event. Nonetheless, the war in Gaza, with its widespread allegations of war crimes and humanitarian disaster, has heightened the scrutiny of these investment links. In practice, these responsible investors appear to be using the Gaza crisis as additional justification, and urgency, to implement or accelerate policies that were already under consideration due to the West Bank situation. In that sense, the Gaza war has been a catalyst for reinforcing existing responsible investment frameworks, rather than inspiring wholly new ones. But the recent case of the Norway’s Government Pension Fund Global may be signaling a change of pace among responsible investors globally.
The case of Norway’s Government Pension Fund Global
The world’s largest sovereign fund, Norway’s $1.9 trillion Government Pension Fund Global (GPFG), just announced in August 2025 that it had sold off its holdings in 11 Israeli companies[2]. The fund’s managers explicitly tied the decision to the “serious humanitarian crisis” unfolding in Gaza[3][4]. Nicolai Tangen, CEO of Norges Bank Investment Management, noted that Norway was invested in companies operating “in a country at war” and that conditions in Gaza and the West Bank had deteriorated to the point of warranting extraordinary action[3][4]. This move came alongside a pledge to terminate all contracts with external fund managers in Israel and bring any remaining Israeli holdings in-house[5][6], effectively reducing the Oil Fund’s exposure to the conflict.
The GPFG has adopted strict ethical Guidelines for Observation and Exclusion of companies to invest in, updated as of 5/09/2022. Since these ethical guidelines are followed by other responsible investors, the fund’s decisions are often adopted as a benchmark in the ESG community. It can be therefore plausible that GPFG’s latest exclusions will be followed by other investors observing and excluding complicit in serious human rights breaches. In this case, the companies involved are tied to the Israeli colonial-settler project of displacement and replacement of Palestinians in the occupied territory, as well as to the ongoing war in Gaza. This connection has been documented in detail in the most recent Report by Francesca Albanese, UN Special Rapporteur on the situation of human rights in the Palestinian territories occupied since 1967, published in the advance edited version as of 30/06/2025. The report, “From Economy of Occupation to Economy of Genocide”, underscores how companies embedded in Israel’s economy are implicated in systematic violations, including forced displacement, destruction of homes, and war crimes in Gaza.
In the next section, we are going to present the case study of one company mentioned in the Report, Airbnb. However, the Report also explicitly names the GPFG itsself among the institutions indirectly financing the violations. As of March 2025, the GPFG, being the world’s largest sovereign wealth fund, managed US$ 1.7 trillion. According to the Report, “by the end of 2024, the GPFG had $121.5 billion – 6.9 per cent of its total value – invested in companies named for violations”. The reputational risk of being associated with this economy of occupation has clearly influenced the GPFG’s recent announcement to reduce its investment exposure to the conflict-linked companies. In this way, the fund’s divestment decision is both a reaction to humanitarian concerns in Gaza and an attempt to safeguard its own credibility as a responsible investor.
Civil Society Pressure and Policy Responses
The clustering of divestment actions in Northern Europe is no coincidence. These countries not only have strong ESG governance traditions; they have also been subject to persistent civil society campaigns demanding an end to financial complicity in the occupation. The “Don’t Buy Into Occupation” (DBIO) coalition, comprising dozens of Palestinian and European NGOs, has, since 2021, publicly documented hundreds of financial institutions’ links to settlement-related companies[19][20]. Their latest report (late 2024) revealed that 822 European financial institutions still had relationships with 58 companies actively involved in settlements – an increase from the prior year[19][20]. The coalition warned that “things are going the wrong way” and called for heightened due diligence and divestment where needed[21]. This NGO spotlight has provided both moral pressure and concrete data for ESG investors to act upon. Indeed, Norwegian People’s Aid (a DBIO member) argued that European investors should “urgently reassess” their approach to companies implicated in the “illegal occupation”,[21] a message that clearly resonated in Oslo, Copenhagen, and Dublin.
Local advocacy has also made an impact at the grassroots level, particularly in the UK. In July 2024, for example, activists with Waltham Forest’s “Free Palestine” campaign leveraged Freedom of Information data to expose that their London borough’s pension fund had £18.7 million invested in companies linked to the arms trade and rights abuses in Palestine[22]. After months of door-to-door petitioning and community pressure, Waltham Forest Council’s pension committee unanimously voted to update its ethical investment policy – committing to divest from all companies involved in the arms trade used in Gaza, to disclose all holdings and report quarterly on divestment progress[23]. Activists hailed it as a “huge breakthrough” for the Boycott, Divestment and Sanctions movement, hoping it sets a precedent for other councils[24]. This example illustrates how public opinion and fiduciary duty can intersect: citizen pressure pushed a local pension fund to recognize that investing in companies fuelling a humanitarian crisis poses not only an ethical problem but also a financial and legal risk.
At the international policy level, there is also mounting support for investor action. The United Nations special rapporteur on the occupied Palestinian territories, Francesca Albanese, has explicitly called on businesses and investors to “cease dealings” with entities linked to Israeli violations of international law[25]. In July 2023, the UN’s International Court of Justice reaffirmed that third-party states (and by extension, their institutions) have an obligation not to recognize or aid the illegal situation arising from settlements[26]. These statements bolster the position of ESG investors who choose to divest, effectively providing international legal cover for what they frame as adherence to human rights norms. Conversely, they increase the spotlight on those investors and firms that remain involved, raising questions about whether such involvement is compatible with emerging human rights due diligence laws in the EU and beyond.
Corporate Accountability and the Airbnb Case: Between Two Fires
Beyond targeting investors, pro-Palestinian activists have also directly targeted corporations for facilitating the occupation – and here too, Northern European actors have been pivotal. One emblematic example is Airbnb, the US-based home rental platform. In late 2018, Airbnb announced (under heavy activist pressure) that it would remove about 200 rental listings located in Israeli settlements in the West Bank, acknowledging that these listings “occur on lands where people have been displaced” and raised human rights concerns[27]. However, that decision triggered an immediate backlash, multiple lawsuits were filed by settlement hosts and advocacy groups in both Israel and the United States, accusing Airbnb of discrimination. By April 2019, Airbnb reversed its stance as part of a legal settlement: the company “will not move forward with implementing the removal of listings in the West Bank”, it declared, instead continuing to allow those listings but pledging to take no profits from them (donating proceeds to humanitarian aid)[28]. This reversal was widely condemned by human rights organizations as a “cowardly move” that put business interests over ethics[29]. It also demonstrated the intense political/legal counter-pressure companies face when wading into the Israel-Palestine issue.
Since then, Airbnb has found itself squeezed between two fires. On one side, it is a target of activist litigation for having business operations on occupied land. In fact, a legal complaint on behalf of Palestinian plaintiffs was filed (with support from the Global Legal Action Network) to challenge Airbnb’s facilitation of settlement rentals[30]. That case argues that by enabling hosts in settlements, Airbnb may be profiting from and normalizing an illegal situation under international law[30]. Following Airbnb, the same network of lawyers now plans to turn its sights on Volvo Group: in mid-2025, GLAN advisers announced an upcoming lawsuit against Volvo for its alleged role in supplying bulldozers used to demolish Palestinian homes[31]. (Volvo, for its part, has responded that it has no control over how customers use its equipment after sale, while insisting it is “working to strengthen [its] due diligence” regarding human rights risks in Israel-Palestine[32][33].)
On the other side, Airbnb faces pressure from pro-Israel and conservative groups that oppose corporate boycotts. In June 2025, the Heritage Foundation – a conservative US think tank – actually sued Airbnb for “illegally” excluding a shareholder proposal that urged the company to “resist politicized demands” related to its operations [34][35]. Heritage, which is an Airbnb shareholder, submitted a proposal essentially calling on Airbnb to ignore calls for divestment or boycotts in places like Israel, framing such calls as extremist or anti-Semitic [34]. Airbnb did not include the proposal on its proxy ballot, claiming it was never received – a claim Heritage disputes, providing proof of delivery[36]. Heritage’s lawsuit argues that Airbnb violated SEC rules by failing to notify the proponents and alleges the company “broke the law – plain and simple” in an attempt to avoid airing a pro-Israel, anti-BDS resolution[37]. Notably, Heritage’s court filing dredged up Airbnb’s 2018 settlement delisting attempt as evidence that the company has “caved to… activist demands” in the past[34][27]. In other words, from Heritage’s perspective, Airbnb’s earlier effort to respect human rights was a mistake it must be compelled never to repeat. This “two-front war” on Airbnb – facing lawsuits for both doing business in the settlements and for even considering pulling out – highlights the treacherous landscape companies navigate in conflicts like this. ESG-minded investors see the legal and moral hazard in continuing operations that might abet human rights abuses, whereas an opposing lobby insists that even acknowledging such abuses crosses into “political” territory. Companies like Airbnb and Volvo find themselves in a damned-if-you-do, damned-if-you-don’t dilemma, with legal challenges buttressing both sides.
The Airbnb saga underscores why most global companies (and their investors) have been hesitant to act decisively on Palestine: any move can invite fierce backlash, whether from human rights advocates or from well-resourced groups leveraging anti-BDS laws. For ESG investors, this means that engagement with companies over these issues can be fraught. Nonetheless, the fact that law-based campaigns are now targeting individual firms – and generating headlines – adds a new dimension of risk that investors must consider. As one Volvo executive admitted when confronted with allegations that its machinery was used to commit abuses, “there is unfortunately a limit to how much control or influence we can have” over end-uses of our products[32][38]. That very lack of control can translate into liability or reputational damage – a point not lost on shareholders.
ESG Ratings Retreat and Accusations of Bias
While a handful of investors and companies have faced the Palestine question head-on, much of the ESG industry’s infrastructure has been retreating from it. In early 2025 it came to light that Morningstar Inc., one of the world’s largest ESG research providers (through its Sustainalytics unit), quietly dropped human rights screening for “occupied territories” from its ratings services[39][40]. Morningstar defended this move with a now-familiar refrain: that the Israel-Palestine conflict (and other contested regions) are “too complex” and politically charged to assess objectively[39]. Internal investigations had been prompted by accusations from pro-Israel groups that Morningstar’s previous research (which flagged companies involved in settlements or arms sales to Israel) was biased and encouraged divestment[41]. Under threat of anti-BDS legislation – for instance, Illinois and Florida were poised to blacklist Morningstar for state business[42] – the company opted to exclude conflict zone controversies entirely. It even adopted the euphemism “disputed territories” and removed terms like “Occupied Palestinian Territory” from its products[40]. By January 2025, Morningstar announced it would no longer issue any ESG risk assessments related to the Israeli-Palestinian conflict (among other territorial disputes)[43][40].
This policy change effectively grants a free pass in ESG datasets to any company activities in the occupied West Bank or Gaza. As UN envoy Francesca Albanese observed, Morningstar’s decision provides “ethical cover” to “Israel’s economy of occupation”, normalizing what international law deems illegal[44]. Albanese noted with alarm that such moves help the Israeli economy attract investment even as it entrenches apartheid-like conditions, calling it the ultimate “normalisation of the illegal”[45][46]. KLP’s Kiran Aziz echoed these concerns from an investor perspective, questioning how ESG data providers can be trusted on human rights at all if they omit entire conflict zones from coverage. “If they cannot provide information related to conflict areas such as the Israeli-Palestinian conflict or Western Sahara, how can we trust their other information on human rights?” Aziz asked, warning that asset owners may need to “consider other options” for data if providers bow to political pressure[47][48].
Morningstar’s retreat was soon mirrored by index provider MSCI, which had been under similar pressure. In mid-2025 it emerged that MSCI had quietly removed a longstanding “severe controversy” flag for Caterpillar Inc. – the U.S. heavy equipment maker whose armored bulldozers are infamously used by Israel to demolish homes and infrastructure. Caterpillar’s D9 bulldozer was explicitly named in the UN’s report as a “core weapon” of Israeli military operations, responsible for killing and injuring civilians and even burying people alive in some cases[49]. Yet MSCI claimed that its removal of Caterpillar’s red flag was merely procedural: under its methodology, controversies are “archived” if no new incidents arise within three years[50][51]. In effect, despite the ongoing use of Caterpillar machines in rights violations, the lack of new allegations in that timeframe allowed MSCI to drop the issue from its ESG indexes. (MSCI says it would reinstate the flag if credible new information surfaces[51].) Whether one accepts these explanations or not, the net result is that investors relying on mainstream ESG ratings might never see a warning about companies’ involvement in the occupation today – not from Morningstar, not from MSCI. Funds can remain labeled “sustainable” “despite investing in Israeli government bonds and in shares of companies involved in violations in the occupied Palestinian territory,” Albanese grimly noted in her report[52].
For many pro-Palestinian advocates, this trend confirms a troubling politicization of ESG standards – ironically, the very accusation leveled by the other side. Far from ESG investing “boycotting” Israel, the opposite appears to be happening: major ratings firms have systematically excised Israel’s occupation from the ESG concern list, following intense lobbying. U.S. anti-BDS laws have played a key role in this chilling effect[42][53]. Morningstar, being based in Illinois, found itself directly in the crosshairs of state legislation that punishes companies deemed to boycott Israel[53]. One Texas law professor observed that Morningstar “capitulated so quickly” only after Florida invoked its anti-BDS law to bar state libraries from using Morningstar services[54]. In such an environment, many global investors have preferred to keep their heads down. Most U.S. asset managers, for instance, have issued no public statements on Gaza or West Bank issues, and none have announced divestments. The same largely goes for major investors in Asia or the Gulf states. In countries like Japan, Australia, and Saudi Arabia – even those whose governments expressed humanitarian concern – their sovereign funds and banks have not made any notable changes to Israel-related holdings. The path of least resistance remains simply following the benchmark indexes, which (thanks to MSCI and others) no longer flag the occupation as a risk.
A Stark Regional Divergence
The overall picture as of late 2025 is one of regional asymmetry in ESG responses to the Israeli-Palestinian conflict. On one side, a set of Northern European investors and institutions – guided by robust ESG mandates, vocal civil societies, and alignment with international law – have taken concrete, if selective, steps to distance themselves from the occupation. Their actions (Norway’s exclusions, Denmark’s bank divestments, Ireland’s precedent-setting move, local UK pension reforms) demonstrate that meaningful ESG integration of human rights is possible, and can even withstand political backlash when backed by public support and clear principles. On the other side, much of the global financial community – including the largest asset managers in the US, UK, and Asia – has remained largely on the sidelines. In some cases, as with Morningstar and certain pension funds, we have seen backtracking, where conflict-related screens that once existed were dropped under external pressure[55][56]. The net effect is that Palestinian human rights are being systematically removed from the ESG agenda in many circles, exactly at the moment when the risks and impacts have never been clearer.
It would be inaccurate to say ESG investors have ignored the West Bank and Gaza entirely – the actions of KLP, GPFG, Velliv, P+, ISIF and others are testament to growing concern in some quarters. But these remain isolated examples. As KLP’s Aziz points out, most institutional investors rely on third-party research and indexes[57]; if those inputs omit the occupation, then only the most proactive investors will act on their own. Thus far, the ones acting have been those with strong responsible-investment mandates and stakeholder demand. The ESG mainstream, in contrast, appears to be averting its eyes.
Yet, the moves we have seen signal important risks that no truly “sustainable” investor can ultimately afford to ignore. Legal campaigns holding businesses accountable for facilitating abuses – whether through international law or shareholder litigation – are gathering momentum. Reputational damage is already being felt by brands associated with war crimes (witness the global protests at bulldozer manufacturers and arms companies). Moreover, regulatory changes (such as the upcoming EU due diligence directive) may soon require investors to consider and mitigate human rights impacts in conflict zones. In short, the current patchwork of responses may not hold. Either more investors will slowly join the early movers, nudged by the evolving risk landscape – or they may find themselves caught off guard by the very issues ESG was meant to anticipate.
In conclusion, the West Bank and Gaza conflict has become a defining test for ESG investing’s integrity. It highlights the tension between financial imperatives and human rights values: some investors are rising to the challenge, aligning portfolios with international law despite political headwinds, while others (including data providers) have opted to shield themselves from controversy by simply redefining what counts as “ESG.” The coming months will reveal whether the principled minority can drive a broader shift, or whether geopolitical pressure will succeed in carving out a permanent exemption for one of the world’s most protracted human rights crises. For now, ESG investors’ reactions remain deeply divided – geographically, politically, and morally – mirroring the very conflict they are being asked to confront.
Sources:
Luxembourg Times – Investigation into ESG ratings and Palestine[1]
Sustainable Views (Financial Times) – Norwegian KLP on Morningstar’s exclusion of conflict zones[47][44]; Legal actions against Airbnb & Volvo[30][31]; Morningstar response and expert review[58][59]; MSCI and Caterpillar controversy[49][50]
Associated Press – Norway’s Oil Fund sells shares over Gaza crisis[2][6]
Reuters – “Don’t Buy Into Occupation” NGO report and calls for divestment[19][20]
The New Arab – Danish pension funds divesting from Israeli banks (Velliv, PensionDanmark, P+)[9][12]
Gov.ie (Ireland Dept. of Finance) – Press release on ISIF divestment from companies in Occupied Territory[17][18]
Morning Star (UK) – Waltham Forest pension fund to divest from arms companies (local activism)[23]
Business & Human Rights Resource Centre / AFP – Airbnb reverses West Bank listings ban after lawsuits[28]
Independent Women’s Forum/Daily Signal – Heritage Foundation sues Airbnb over “politicized demands” proposal[34][35]
[1] Palestine abuses scrubbed from ESG investment reports
https://ground.news/article/palestine-abuses-scrubbed-from-esg-investment-reports
[2] [3] [4] [5] [6] Norway’s sovereign wealth fund sells its shares in 11 Israeli companies | AP News
[7] [8] [25] [30] [31] [32] [33] [38] [42] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59]Investor concerns grow over exclusion of Palestinian human rights from ESG screening – Sustainable Views
[9] [10] [11] [12] [13] [14] [15] [16] Danish pension funds divest from Israeli banks and companies
https://www.newarab.com/analysis/danish-pension-funds-divest-israeli-banks-and-companies
[17] [18] Minister McGrath notes NTMA confirmation of divestment from certain investments in the Occupied Palestinian Territory
[19] [20] [21] [26] Over 800 European financial groups deal with firms linked to Israeli settlements, NGOs say | Reuters
[22] [23] [24] Pro-Palestine activists score major breakthrough after council pledges to divest pension fund | Morning Star
[27] [34] [35] [36] [37] Heritage Continues Battle Against Woke Corporations, Sues Airbnb for Excluding Proposal to Depoliticize Company
https://www.iwf.org/2025/06/12/heritage-continues-battle-against-woke-corporations/
[28] Israel/Palestine: Airbnb overturns decision to remove listings in West Bank following lawsuits – Business & Human Rights Resource Centre
[29] Israel/OPT: Reversal of Airbnb ban on illegal settlement listings …
[39] [40] [41] [43] Top asset management firm stops rating human rights risk in Israeli-Palestinian conflict | The Times of Israel