State Financial Officers Challenge Rating Agencies on ESG Policies

Twenty-two state financial officers have formally challenged major credit rating agencies, including Moody's, Fitch, and Standard & Poor's, over their alleged reliance on outdated environmental, social, and governance (ESG) policies. The officials contend that these criteria are being applied inconsistently, leading to higher rankings for Chinese companies and downgrades for U.S. businesses.

In a letter sent to the agencies, the state treasurers and auditors expressed concern that their own financial stability could be jeopardized if credit rating agencies continue to use the ESG framework to downgrade publicly traded companies in which the states hold substantial investments. The potential for these companies to lose value could impact the states' ability to fund essential services like roads and schools, and to meet pension obligations for public servants.

The letter highlighted a specific instance where, according to the officers, S&P downgraded U.S. oil and gas companies due to ESG-related risks but maintained an A+ rating for two Chinese state-owned oil and gas companies, citing their perceived advantage over international competitors. The state officials deemed this assessment contradictory, given China's significant pollution output and the Chinese Communist Party's human rights record.

"The ratings agencies’ use of ESG is so subjective and inconsistent that while American companies were downgraded, ratings were affirmed for state-owned Chinese companies that are worse by every objective ESG metric," the letter stated. The officers called for credit rating agencies to employ objective and consistent methodologies and to reverse downgrades based on what they described as false ESG predictions.

Furthermore, the financial officers pointed to the continued use of specific environmental studies by Moody's and S&P that have since been retracted. They cited a 2025 retraction of a 2024 Nature study projecting significant economic losses from climate change, which they argue illustrates methodological concerns regarding the use of speculative predictions.

OJ Oleka, CEO of the State Financial Officers Foundation, stated, "This important letter puts the nation’s top credit rating agencies on notice for playing political games at the expense of everyday Americans, and it also gives them an opportunity to once again do what they were designed to do. S&P, Moody’s and Fitch can be respected sources of financial analysis, or they can be activists for an outdated ideological agenda, but they cannot be both."

The officials also noted that predictions regarding a decline in fossil fuel use have not materialized as expected, citing studies that have not shown a dramatic decrease in consumption. They also contested the assumption that governments would significantly curtail fossil fuel use, referencing policy shifts such as the rollback of fuel emissions standards.

The letter concluded by asserting that "credit ratings should rest on objective financial analysis rather than politically contingent judgments." The signatories are seeking detailed explanations from the agencies on how they incorporate ESG criteria and rely on potentially flawed or retracted studies in their evaluations.

The group of signatories includes auditors and treasurers from 17 states: Arizona, Arkansas, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Utah, and West Virginia.