Texas joins probe of S&P's ESG credit scores

Texas has joined a multi-state investigation into S&P Global Ratings' use of environmental, social, and governance factors in public finance ratings and potential violations of consumer protection laws launched by Missouri Attorney General Eric Schmitt earlier this month.

ESG credit indicators, scores, and evaluations published by the rating agency appear to politicize "what should be a purely financial decision and may deceptively confound the distinction between subjective opinions and objective financial facts," according to a statement Wednesday from Texas Attorney General Ken Paxton. 

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"We're investigating S&P Global to find out if they've engaged in the types of destructive, illegal business practices that are so pervasive in the ESG movement," he said. "If so, they will have to answer for their actions."

In a statement, S&P acknowledged the information requests and said, "we take matters such as these seriously and are committed to serving the markets with essential insights, data and analysis."

An ESG credit indicator report card for all 50 states released by S&P on March 31 said the indicators "provide additional disclosure and transparency at the entity level and reflect our opinion of the influence that environmental, social, and governance factors have on our credit rating analysis. ESG credit indicators provide additional transparency on what is already incorporated into our credit rating analysis. They are not sustainability ratings or a stand-alone assessment of an entity's ESG performance."

In its civil investigative demand, Texas gave S&P until Oct. 13 to produce unredacted documents detailing development, criteria, and use of ESG factors, including draft scores and communications with regulators such as the Municipal Securities Rulemaking Board and the Securities and Exchange Commission.  

A MSRB report in August, which summarized responses to a request for information on ESG considerations in the municipal market, cited the need for clarity.

The report card prompted officials in several states, including Utah, West Virginia, Idaho, and Louisiana to blast S&P for politicizing the ratings process by incorporating ESG factors. The rating agency turned down a request by Utah Treasurer Marlo Oaks to withdraw or cease publishing ESG credit indicators for his state, saying, "we will not allow any issuer to inappropriately influence our analytical processes or our credit rating opinions."

S&P assigned neutral credit indicators to AAA-rated Texas and Missouri, with the exception of a moderately negative environmental score for Texas due to the state's large oil and gas industry and risks from severe weather events and sea-level rise.

Attorneys general from Utah and Kentucky are also participating in the probe, according to a spokesman for Schmitt.