Twenty-two state financial officers have jointly raised concerns with leading credit rating agencies over what they describe as outdated and inconsistent Environmental, Social, and Governance (ESG) criteria applied in evaluating publicly traded companies. In a letter sent Wednesday to Moody’s, Fitch, and Standard & Poor’s, the officials questioned the continued use of ESG frameworks, which they argue may unfairly downgrade American firms while allowing more favorable ratings for certain foreign companies, particularly Chinese state-owned businesses.
The letter, reviewed by the press, highlights the potential financial consequences for states that have invested billions in these companies. Officials warned that lower credit ratings could reduce investment returns, potentially impacting state budgets and critical public services such as infrastructure maintenance and pension obligations for public employees including police officers, firefighters, and teachers.
A central grievance raised concerns the apparent discrepancy in how credit rating agencies assess U.S. versus Chinese oil and gas firms. The officials pointed out that, despite ESG-related “risks” cited to justify downgrades in several American energy companies, Standard & Poor’s maintained an AA rating for two major Chinese state-owned oil and gas companies. The letter argued this stance is “nonsensical by any objective standard” given China’s status as the world’s largest emitter of greenhouse gases and the Chinese Communist Party’s documented record on human rights issues.
Critics in the letter assert that the agencies’ ESG methodologies are marked by subjectivity and inconsistency. They contend that the current approach favors political and ideological considerations, including diversity, equity, and inclusion (DEI) policies, alongside environmental factors. The officials further expressed concerns that some environmental data underpinning credit evaluations are based on outdated or even retracted studies, calling into question the reliability of these assessments.
The states’ financial officers urge the rating agencies to reevaluate their ESG frameworks in order to ensure that credit ratings more accurately reflect objective, up-to-date metrics. They emphasize the need for methodological rigor and transparency to preserve the integrity of credit ratings and protect state investments from being undermined by policies deemed speculative or ideologically driven. The agencies’ response to the letter has not yet been publicly disclosed.