In April, I wrote about a collection of 23 state Attorneys General who wrote to Fitch, Moody’s, and S&P Global. Their letter chastised the credit ratings agencies for considering ESG factors in their financial ratings. The AGs felt that fossil fuel firms were unfairly downgraded in recent years. The letter closed with litigation threats and a list of interrogatories for the agencies. A group of state-level Democrats recently responded with their own letter arguing the opposite position:
“We are concerned that recent arguments regarding credit rating practices mischaracterize the role of ratings and would narrow risk analysis in ways inconsistent with sound credit practice and the needs of investors and issuers.
Credit ratings are intended to assess the ability to meet financial obligations over time. That responsibility necessarily requires consideration of forward-looking factors, including changing market conditions, policy environments, and long-term structural trends. Limiting analysis to fully realized developments would diminish the usefulness of ratings as indicators of emerging risk.”
Notably, the letter does not refer to “ESG” or “sustainability.” However, it does emphasize the importance of neutral evaluation of long-term financial risks. We’ll have to wait and see which arguments are most persuasive to credit ratings agencies. Anti-ESG is in power and is wielding it broadly. However, ignoring ESG-related risks in credit ratings could create substantial blind spots and systemic risks in the financial sector.
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