A group of 23 U.S. State Attorneys General* published a letter to Moody’s, S&P Global Ratings and Fitch Ratings, raising concerns over the firms’ incorporation of ESG factors into their credit ratings for companies and jurisdictions.
The letter, led by the AGs of Nebraska, Alaska, Florida, and Texas cites alleged potential violations by the credit rating agencies of federal and state laws through their ESG policies, including SEC violations, consumer protection laws, antitrust concerns, and conflicts of interest, and warns the companies of potential “enforcement action” if a series of demands are not met, including providing information on ESG-driven downgrades and withdrawing from ESG commitments.
The letter forms the latest in a series of anti-ESG initiatives by Republican politicians in the U.S. over the past few years, which has gained momentum since the election of Donald Trump, including campaigns targeting investment firms, financial institutions, proxy advisory firms, standards organizations, and companies over their sustainability policies and participation in climate-focused initiatives.
In the letter the AGs allege that the companies downgraded the credit ratings of fossil fuel companies “based on highly speculative ESG predictions and goals,” and that their ESG policies also threaten to undermine the bond ratings of fossil fuel-producing states as well.
The AGs cite a broad range of alleged potential legal violations by the credit rating firms, including SEC or Exchange Act violations such as failing to disclose potential conflicts of interest by both incorporating ESG factors into ratings while also offering ESG consulting services, and state-level unfair and deceptive acts and practices, as well as antitrust concerns through participation in groups including the UN PRI, and Moody’s’ and S&P Global’s participation in the recently disbanded Net Zero Financial Service Providers Alliance (NZFSPA).
The letter stated:
“The Ratings Agencies’ Downgrades were largely premised on far-fetched ESG goals that have not materialized. The Downgrades violated stated methodologies and reflected undisclosed material conflicts of interest, implicating SEC rules and state consumer protection laws. The Ratings Agencies also have harmed states with fossil-fuel production, including by using similarly flawed methodologies to create the State Downgrades.”
The AGs outline a series of “requested actions” from the ratings companies, asking them to provide written explanations of “specific, quantified financial (not ESG) basis for each maintained downgrade of fossil-fuel companies and states, or reverse all such ESG-driven downgrades,” withdraw from the UN PRI or “disclose the PRI commitment as a material conflict of interest,” publish revised methodologies for oil and gas that remove ESG transition risk factors or place them within specific time horizons, stop offering ESG advisory services or disclose them as a conflict of interest, and verify that internal controls have been reviewed to prevent ESG commitments from influencing credit determinations, adding that “failure to take these corrective actions will inform the undersigned attorneys general’s assessment of whether enforcement action under state UDAP laws, antitrust investigation, referral to the SEC’s Office of Credit Ratings, or coordination with the U.S. Department of Justice is warranted.”
In a statement released alongside the publication of the letter, Nebraska Attorney General Hilgers said:
“Today’s letter is our latest effort to push back against those who are unelected but want to force their unpopular policies on the public. Credit worthiness should be based on market forces and sound accounting, not the political projects and unfeasible ideas of a few powerful people that are not accountable to voters.”
In a statement provided to ESG Today, an S&P Global spokesperson said that the company is aware of the letter, adding, “we take these matters very seriously and do not have further comments at this time.” Moody’s and Fitch were not immediately available for comment.
Click here to access the letter.
*The letter was signed by AGs from Nebraska, Alaska, Florida, Texas, Alabama, Arkansas, Georgia, Idaho, Iowa, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, North Dakota, Ohio, Oklahoma, Utah, West Virginia, Wyoming, and South Carolina.
