In addition to eliminating the Human Rights Radar product, Morningstar's Sustainalytics unit will take other steps recommended by law firm White & Case LLP, such as making its research more transparent and adding an ombudsperson. In a note on Chicago-based Morningstar's website, CEO Kunal Kapoor said that the company previously was "overly dismissive" when Jewish groups and others raised concerns about bias in its research.

"Any notion that we're not objective, not transparent and not consistent is important to us," Sustainalytics President Bob Mann said in an interview.

Human Rights Radar had only three employees, Mann said.

The reforms mark the latest rethink for the ESG movement, under fire over the ways that firms apply social concerns to financial decisions. Sustainalytics is one of the main firms assigning ESG ratings to companies as investors pour billions of dollars in sustainable funds.

Jewish groups have complained that Sustainalytics' work supported international efforts to isolate Israel over its treatment of Palestinians in occupied territories.

White & Case's report states that companies' ties to Israel were noted much more frequently in Human Rights Radar compared with other places where companies could be exposed to human rights concerns such as Saudi Arabia or Tibet.

The law firm found fewer problems with other Sustainalytics products and said Morningstar's willingness to be reviewed shows its "commitment to industry leadership."

Jay Tcath, executive vice president of the Chicago Jewish Federation, which had met with Morningstar on the issues, said the organization welcomed "the honest, thorough report" and called the company's reforms "meaningful."

(Reporting by Ross Kerber; Editing by Leslie Adler)

By Ross Kerber