Business

Over 20 State Treasurers Warn Agencies Against Using ESG For Deciding Credit Ratings

wall street

Twenty-two state financial officers demanded answers Wednesday from America’s largest credit rating agencies over allegedly flawed environmental, social and governance (ESG) policies they warn could threaten taxpayer money, public pensions and state borrowing costs.

The officials, representing 17 states, accused S&P Global Ratings, Moody’s and Fitch Ratings of allowing politically driven climate assumptions to influence credit decisions, according to a letter also sent to Securities and Exchange Commission (SEC) Chairman Paul Atkins. The dispute could carry financial consequences for taxpayers because lower credit ratings can increase government borrowing costs and affect investments held by state pension systems.

“Ratings agencies’ use of false ESG predictions harms States’ credit ratings and stock holdings, threatening States’ ability to pay for roads and schools, as well as pensions for police officers, firefighters, teachers and other employees,” the officials wrote.

S&P Global Ratings, Moody’s and Fitch Ratings did not respond to the Daily Caller News Foundation’s requests for comment by the time of publication.

The letter targets the agencies’ use of “transition risk,” which assesses the potential financial consequences of moving away from fossil fuels, and “physical risk,” which considers economic damage associated with climate change. The officials argued that the agencies relied on predictions about declining fossil fuel demand, aggressive emissions restrictions and climate-related economic losses that failed to materialize or drew on subsequently retracted research.

The National Oceanic and Atmospheric Administration’s billion-dollar disaster statistics faced criticism in January 2024 for conflating rising economic losses with worsening weather. Critics argued that growing populations and increasingly valuable property in disaster-prone areas could drive higher damage totals without necessarily demonstrating that storms had become more severe. NOAA defended its methodology, claiming that increased exposure, vulnerability and climate change all contributed to rising losses.

The officials cited S&P’s consideration of energy transition risks in credit outlooks for Alaska, New Mexico and Pennsylvania, along with Moody’s environmental assessments of fossil-fuel-dependent states, including Louisiana and North Dakota.

They also criticized S&P for downgrading American oil and gas companies partly over climate-related concerns while affirming A+ ratings for two Chinese state-owned energy companies.

“The very fact that so-called ‘ESG risk’ resulted in some American companies getting downgraded while Chinese state-owned companies received high ratings should be enough to discredit this absurd metric permanently,” Consumers’ Research Executive Director Will Hild told the DCNF.

“No credit rating agency should base scores on ESG, period,” Hild added.

S&P discontinued its alphanumeric ESG credit indicators in August 2023, although the decision did not eliminate consideration of financially material environmental, social and governance risks in its ratings analysis.

Utah Treasurer Marlo Oaks, national chairman of the State Financial Officers Foundation (SFOF), acknowledged the change but argued that the underlying problem remained.

“Ratings agencies continue to incorporate speculative ‘transition risk’ and ‘physical risk’ assumptions into credit decisions, potentially increasing borrowing costs and harming taxpayers based on politically contingent predictions that have failed to materialize or have been retracted,” Oaks said in a statement provided to the DCNF.

The officials also questioned the agencies’ continued reliance on climate research, including a 2024 Nature study projecting substantial economic losses from climate change that was retracted in December 2025 following challenges to its underlying data and methodology.

“S&P, Moody’s, and Fitch can be respected sources of objective financial analysis, or they can be activists for an outdated ideological agenda, but they cannot be both,” SFOF CEO OJ Oleka told the DCNF.

The letter demanded explanations of how climate risks influenced ratings, why previous negative credit actions have not been reversed and whether disputed research prompted methodological changes. It also questions Fitch’s use of climate policy forecasts and whether ESG commitments by S&P and Moody’s created potential conflicts of interest.