State AGs Challenge Rating Agencies Over ESG-Driven Downgrades

Several state Attorneys General accused three ratings agencies of downgrading fossil fuel companies and energy-producing states based on speculative social criteria that violated their own stated methodologies and concealed material conflicts of interest.

In a letter to Fitch Ratings, Moody’s Investors Service, S&P Global Ratings and the SEC, the Attorneys General of Nebraska, Alaska, Florida, and Texas ("State AGs") said the agencies' downgrades rested on four environmental, social and governance ("ESG") predictions that proved false: (i) governments did not impose stricter climate regulations; (ii) fossil fuel demand did not peak; (iii) renewable energy did not displace fossil fuels; and (iv) ESG investment mandates did not grow - they collapsed. They said that the International Energy Agency now projects oil, gas, and coal demand rising through 2050, noting the energy sector outperformed the broader S&P 500 by a record margin as of March 2026.

The State AGs alleged the ratings agencies harbored undisclosed conflicts of interest, in that all three committed to the UN-backed Principles for Responsible Investment ("UN PRI") to incorporate ESG systematically into credit ratings. They highlighted that Moody’s and S&P joined the Net Zero Financial Service Providers Alliance ("NZFSPA,") committing to align all products and services with net-zero goals - thereby creating pressure to downgrade fossil fuel companies while simultaneously driving demand for each agency’s ESG consulting services. The State AGs underscored that neither Moody’s nor S&P disclosed these conflicts on required SEC filings.

The State AGs also argued that this same flawed methodology harmed fossil fuel-producing states. They said that the S&P downgraded the outlook for Alaska, New Mexico, Pennsylvania, West Virginia, and Wyoming based on anticipated energy transition risks - even as energy revenues drove strong fiscal performance in those states.

The letter demanded the ratings agencies take the following corrective actions:

• within 90 days, provide a written financial - not ESG - justification for each maintained fossil fuel downgrade, or reverse those Downgrades;
• within 60 days, withdraw from UN PRI or disclose that commitment as a material conflict on Form NRSRO Exhibit 6;
• publish revised oil and gas sector methodologies that remove or limit ESG transition-risk factors to a defined, evidence-based time horizon;
• cease offering ESG consulting services to entities the agency also rates, or disclose that dual relationship as a conflict; and
• certify in writing that internal controls were reviewed and updated to prevent ESG commitments from influencing credit determinations.

The State AGs said that failure to comply would inform their assessment of whether to pursue enforcement actions under state unfair and deceptive acts and practices laws, initiate antitrust investigations, or refer the matter to the SEC Office of Credit Ratings or the DOJ.