Republican Attorneys General Urge Scrutiny of Credit Rating Agencies
A coalition of Republican state attorneys general is pushing federal regulators to examine the practices of the major credit rating agencies amid concerns that they continue to use questionable climate assumptions in their financial assessments.
Led by Montana, the group has reached out to the Securities and Exchange Commission’s (SEC) Office of Credit Ratings, expressing that Moody’s, Fitch Ratings, and S&P Global Ratings are incorporating environmental, social, and governance (ESG) factors in ways that could negatively impact fossil fuel companies and energy-dependent industries.
This letter follows a previous initiative by 23 state attorneys general, who sought explanations from these agencies regarding their ESG-influenced rating decisions. The office of Louisiana’s Republican Attorney General, Liz Murrill, noted that their coalition was questioning whether the agencies’ ESG policies aligned with federal regulations.
Credit ratings are crucial because they assess a borrower’s capacity to repay debts; therefore, a downgrade can lead to higher borrowing costs and diminished appeal for some investors. The SEC recognizes Moody’s, Fitch, and S&P as statutory rating organizations that are subject to federal oversight.
The letter emphasizes an August report from Moody’s that analyzed potential impacts of heat and water stress on businesses. The attorneys general are particularly critical of Moody’s continued reliance on RCP 8.5—the Representative Concentration Pathway 8.5, which projects a high-emissions future—even as experts have labeled it unrealistic based on current emissions trends.
Neither Moody’s, Fitch, S&P Global, nor the SEC responded promptly to inquiries for comments on this situation.
According to Moody’s, RCP 8.5 is one of several scenarios used to gauge future climate risks, and they assert that their models provide valuable insights for insurers and investors by allowing them to assess potential vulnerabilities. The report did also consider the less severe RCP 4.5 scenario while applying RCP 8.5 to certain predictions regarding future water stress in the U.S.
There’s been ongoing debate among scientists about the suitability of RCP 8.5 for modeling. Some researchers have cautioned against viewing this high-emission scenario as the most likely future outcome, while others regard it as a useful extreme risk scenario, rather than a baseline prediction.
The coalition of attorneys general has also criticized another Moody’s claim that physical climate risks could generate around $41.4 trillion in economic losses by 2050, equivalent to about 14.5% of global GDP. They dispute the accuracy of this figure, suggesting that it’s based on a study from 2024 that has since been retracted due to concerns over economic data and methodologies.
“Credit ratings should reflect financial reality, not an ESG agenda,” stated Jason Isaac, CEO of the American Energy Institute. He emphasized that using unrealistic climate scenarios and discredited studies jeopardizes the reliability of ratings essential for investors and could increase operational costs for American energy companies.
Similarly, Will Hild, the executive director of Consumers’ Research, accused the rating agencies of continuing to apply ESG considerations despite pushback from state officials. “These woke ratings agencies continue to push ESG policies and blatantly ignored calls for the removal of woke ideology from their business practices,” he said.
The attorneys general are urging these agencies to clarify or retract ratings they believe were influenced by ESG factors, adopt consistent methodologies specific to sectors, and either eliminate certain ESG commitments or disclose any related conflicts to the SEC.
The SEC’s Office of Credit Ratings is responsible for overseeing Moody’s, Fitch, S&P, and other recognized rating agencies, ensuring compliance with federal standards related to methodologies and conflicts of interest.
