HELENA, Mont. — Montana Attorney General Austin Knudsen is leading a 22-state coalition urging the Securities and Exchange Commission to examine whether Moody’s Corporation is complying with federal rules governing credit-rating agencies and potential conflicts of interest.
In a letter to K. Scott Davey, acting director of the SEC’s Office of Credit Ratings, the attorneys general raised concerns about Moody’s use of environmental, social and governance factors in its analysis and argued that some of the climate assumptions cited by the company are unreliable.
The coalition specifically criticized an August Moody’s report that used the RCP 8.5 climate scenario in evaluating heat and water risks. Knudsen and the other attorneys general contend that the scenario is too extreme to serve as a reasonable basis for credit-related assessments.
They also pointed to climate-related economic-loss research cited on Moody’s website that they said had later been withdrawn because of errors.
“Rather than reversing downgrades based on false predictions, Moody’s is relying on an extreme scenario that has been officially abandoned and an extreme scientific paper that has been officially retracted,” Knudsen wrote.
The coalition argued that Moody’s ESG-related services could create conflicts if the company simultaneously offers consulting or assessment products tied to environmental goals while issuing credit ratings that may be affected by similar considerations.
The attorneys general asked Moody’s to explain or reverse what they described as ESG-driven downgrades, rely on what they consider more credible scientific sources and either eliminate potential ESG-related conflicts or disclose them to investors, insurers and lenders.
The SEC’s Office of Credit Ratings oversees credit-rating agencies registered as nationally recognized statistical rating organizations. Its responsibilities include examining those firms for compliance with federal law, promoting accuracy in ratings and monitoring potential conflicts of interest.
Knudsen joined a separate multistate letter earlier this year raising similar concerns with Moody’s, Fitch Ratings and S&P Global Ratings.
Attorneys general from Alabama, Arkansas, Florida, Georgia, Idaho, Iowa, Indiana, Kansas, Kentucky, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia and Wyoming joined Montana in the latest letter.