The question of whether and how financial credit rating agencies should approach climate risk is gaining more traction. Like many ESG controversies, it all started with a letter from twenty-three Republican state attorneys general. That letter threatened litigation against the country’s three largest credit rating agencies for considering climate risks in credit ratings for fossil fuel companies. After that letter, Democrats responded with a letter of their own. Authored by a handful of state comptrollers and financial experts, this letter defended the incorporation of climate risk into credit ratings from a financial standpoint. Now things have gone up a notch. Twenty Democratic attorneys general recently wrote to the SEC. They urge the SEC not to pursue enforcement against credit rating agencies, arguing that:
“Any imposition of partisan pressure and threats of legal action against the Ratings Agencies to compel changes in their independent processes and ratings for partisan purposes would be improper, set dangerous precedent, and potentially overstep the Credit Rating Agency Reform Act of 2006, which prohibits the SEC or any state or local government from regulating “the substance of credit ratings or the procedures and methodology pursuant to which [a ratings agency] determines credit ratings.”121 Thus, any attempts by the Letter’s signatories to pressure the Ratings Agencies to alter their policies or ratings based on the partisan priorities of the signatory states, or to assert that the SEC should investigate the Ratings Agencies for their refusal to do so, should be soundly rejected. The Ratings Agencies should be permitted to use independent, fact-based methodologies to evaluate climate and transition risks and incorporate those risks into their ratings.”
We’ve seen letters from attorneys general escalate into full-on legal battles before. BlackRock and State Street received similar letters prior to the Texas AG’s ESG antitrust suit. Similarly, letters were issued prior to Texas and West Virginia’s legal challenge to ISS. Sometimes these letters go nowhere. However, they are a regular precursor to legal action. The Democratic AGs’ response may indicate that climate risks in credit ratings are the next front in anti-ESG’s legal crusade.
Our members can learn more about anti-ESG here.
Interested in a membership with access to the complete range of benefits and resources? Sign up now and take advantage of our no-risk “100-Day Promise” – during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. But it will probably pay for itself before then. Members also save hours of research and reading time each week by using our filtered and curated library of ESG/sustainability resources covering over 100 sustainability subject areas – updated daily with practical and credible information.
Practical Guidance for Companies, Curated for Clarity.
