Over 20 State Treasurers Warn Agencies Against Using ESG For Deciding Credit Ratings
Twenty-two state financial officers from 17 states accused S&P Global, Moody’s, and Fitch of using ESG policies in credit ratings, potentially raising borrowing costs. They cited downgrades of U.S. energy firms and high ratings for Chinese state-owned companies. The agencies did not respond. The officials demand explanations on climate risk influences and methodological changes.
How this was made
The 30-second read
Why it matters
The public dispute could trigger regulatory review of rating agencies' ESG frameworks and affect market confidence in their ratings.
Market read
The criticism may lead to short-term pressure on rating agencies and influence state pension fund strategies.
What to watch
The letter does not address any concrete methodological errors, only perceived bias.
Background
State financial officers from 17 states sent a joint letter to major rating agencies and the SEC, accusing ESG-driven assumptions of inflating borrowing costs.
Ticker impact
State treasurers allege S&P Global Ratings' ESG assumptions bias credit ratings, potentially raising borrowing costs.
likely downward as market prices in potential rating methodology concerns
Public criticism from multiple states may prompt scrutiny and affect investor confidence.
Moody's is cited in the letter for using ESG transition risk in credit decisions, which states claim could increase borrowing costs.
potential short-term pressure as investors assess ESG methodology risk
Similar to S&P, Moody's faces scrutiny that could affect its market perception.
Market effects
Credit rating industry may see heightened regulatory focus on ESG models.
U.S. state pension funds could reassess exposure to agencies' ESG-influenced ratings.
Potential ripple effect on global investors relying on S&P and Moody's ratings.
Counterpoint
Some investors may view the criticism as overblown, seeing ESG integration as a long-term risk management tool.
Key entities
- companyS&P Global Ratings
Major credit rating agency accused of ESG bias.
- companyMoody's
Credit rating agency cited for ESG-driven assessments.
- companyFitch Ratings
Credit rating agency mentioned in the criticism.
- organizationState Financial Officers Foundation
Group representing state treasurers issuing the letter.
