EXCLUSIVE: State AGs Demand Investigation Into Credit Firms Accused Of Punishing Fossil Fuel States

Republican state attorneys general are asking federal regulators to scrutinize the big three credit rating agencies over allegations they continue relying on questionable climate assumptions when assessing financial risks, the Daily Caller News Foundation has learned.

The Montana-led coalition argues in a letter to the Securities and Exchange Commission’s (SEC) Office of Credit Ratings that Moody’s, Fitch Ratings and S&P Global Ratings continue incorporating environmental, social and governance (ESG) considerations in ways that can affect fossil-fuel companies, industries and governments dependent on energy revenues.

The letter, first obtained by the DCNF, follows an earlier effort by 23 state attorneys general demanding the three agencies explain allegedly ESG-driven rating decisions. Republican Louisiana Attorney General Liz Murrill’s office said at the time that the coalition was questioning whether the agencies’ ESG policies complied with federal law.

Credit ratings assess a borrower’s ability to repay its debts, meaning a downgrade can increase borrowing costs and make bonds less attractive to some investors. The SEC recognizes Moody’s, Fitch and S&P as nationally recognized statistical rating organizations subject to federal oversight.

The latest letter focuses heavily on an August report from Moody’s examining how heat and water stress could affect businesses and financial institutions. The attorneys general argue Moody’s continued relying on RCP 8.5, short for Representative Concentration Pathway 8.5, a high-emissions climate scenario used to model potential future warming — even after researchers described that pathway as implausible under current emissions and energy trends.

Moody’s, Fitch, S&P Global and the SEC each did not immediately respond to requests for comment from the DCNF.

Moody’s described RCP 8.5 as one of several modeled pathways used to estimate how severe future physical climate risks could become and said its modeling could help insurers, lenders and investors stress-test their exposures, or gauge how they could perform under adverse conditions. The Moody’s report also considered the lower-emissions RCP 4.5 scenario in portions of its analysis, while using RCP 8.5 for some projections of future U.S. water stress.

Scientists have debated the proper use of RCP 8.5 for years. Researchers writing in Nature previously warned against treating the high-emissions pathway as the most likely “business-as-usual” outcome, while other research has described it as a useful high-end risk scenario rather than a central forecast.

The attorneys general also target a separate Moody’s estimate that physical climate risks could impose roughly $41.4 trillion in economic losses by 2050. Moody’s describes that figure as a potential global economic impact, equivalent to roughly 14.5% of global GDP, while the draft AG letter characterizes it as losses to U.S. GDP.

The coalition argues the estimate is further compromised because the modeling framework drew from a 2024 Nature paper that was subsequently retracted. The paper’s authors withdrew the study after finding its results were sensitive to problems in underlying economic data and to methodological questions raised after publication.

Credit ratings should reflect financial reality, not an ESG agenda,” Jason Isaac, CEO of the American Energy Institute, told the DCNF. “When rating agencies rely on implausible climate scenarios and retracted studies to influence credit decisions, they undermine the integrity of the ratings investors depend on and can drive up the cost of capital for American energy producers.”

Will Hild, executive director of Consumers’ Research, similarly accused the ratings agencies of continuing to rely on ESG considerations despite previous objections 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,” Hild told the DCNF. “Instead of providing legitimate financial analysis for its customers they continue to rely on ESG-driven metrics, even after they have proven to be implausible.”

The attorneys general are asking the agencies to explain or reverse ratings they contend were driven by ESG considerations, publish and consistently follow sector-specific methodologies and either eliminate certain ESG-related commitments and consulting conflicts or disclose them to the SEC.

The SEC’s Office of Credit Ratings oversees Moody’s, Fitch, S&P and other nationally recognized statistical rating organizations and examines whether they comply with federal requirements governing methodologies and conflicts of interest. SEC rules require registered rating agencies to maintain procedures governing their methodologies and to disclose and manage specified conflicts.