Idaho officials blast S&P, warn ESG credit indicators in ratings 'subjective way to penalize' states
'Credit rating agencies need to Stay in Their Lane,' Idaho treasurer tells FOX Business
FIRST ON FOX: Top Idaho officials sent a letter to S&P Global Ratings blasting the company for using environmental, social, and governance (ESG) credit indicators in their ratings for states, blasting it as "inconsistent" with the basis of financial planning.
Idaho’s governor, lieutenant governor, treasurer, national lawmakers, and state legislature leaders all signed the Thursday letter not mincing words to S&P CEO Douglas Peterson and president Martina Cheung.
"The ESG rating methodology that S&P has implemented to ‘provide additional disclosure and transparency' when evaluating creditworthiness appears to be nothing more than a subjective way to penalize Idaho and other states for their political priorities," Idaho Treasurer Julie Ellsworth told FOX Business in a Thursday statement.
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"S&P must maintain the highest of integrity and stick to solid, unbiased financial ratings based on fact and not political whim," Ellsworth continued.
Ellsworth said that rating "agencies assign ratings based on a debtor's ability to make payments" and that when agencies "start including ESG criteria, they are crossing into the lane of policymakers and regulators that answer to the people they serve."
"Credit rating agencies need to Stay in Their Lane," the Idaho treasurer added.
Derek Kreifels, the CEO of the State Financial Officers Foundation, told FOX Business in a statement that the "momentum is building for states pushing back against companies like S&P ratings and Blackrock who mean to politicize public investments."
"Treasurer Ellsworth’s leadership will no doubt help make more states aware of what progressives are doing to advance partisan agendas outside of the democratic process," he continued.
In the letter, the officials agreed with the similar Utah letter previously sent to S&P and torched the financial company over the practice, calling it "inconsistent with the fundamentals of sound financial planning and evaluation."
"Idaho has consistently maintained a solid credit rating, weathered recessions, corrections, and market volatility without deviation," the officials wrote. "The state balances its budget each and every year, and carefully manages its debt load, which currently includes being on track to pay thirteen (13) bonds off early."
"Idaho has full and robust reserve and rainy days funds which are currently at their statutory maximum," the letter continues. "In short, Idaho is solvent and should not be penalized by you or any other entity for its sovereign decisions."
The officials wrote the most "concerning" part of S&P’s practice is the company’s "adoption of these tools with a blind eye towards its own past," pointing to the firm admitting "to falsely representing that its ratings were objective, independent and uninfluenced by S&P’s business relationship with the investment banks that issued securities covered by S&P" in 2015.
"S&P also paid $1.375 billion to settle these claims, including millions of dollars to Idaho," they wrote. "Paramount among these allegations was that S&P refused to use sound objective financial information and instead chose to rely upon business relationships."
"We are very concerned that S&P does not appear to be learning the lessons of its own past, and instead is again embarking on a political course designed to curry favor with specific customers through the creation of a subjective ratings system. This is not how the State of Idaho manages its finances, nor is it how S&P should evaluate Idaho’s careful stewardship of its monies."
The officials called "the means by which S&P creates" their scores "baffling" and that "in reviewing the scores no state has a score of positive for Governance (G-1)," even though each state and virtually all political subdivisions in the U.S. are "governed by elected officials."
They went on in the three-page letter to say it "is impossible for the State of Idaho not to conclude that S&P has adopted a politicized ratings system" and pointed to the Utah letter "tellingly pointed out within their objection, S&P bequeathed higher ESG ratings on Russian and Chinese energy companies than on American ones."
"Objectively this would appear impossible because Russian energy is state-controlled. This is even more perplexing knowing the corrupt and sanctions filled past of these Russian controlled companies, while law abiding American companies who are answerable within the American and international system are scored lower. Similarly, China’s state-owned energy company has a higher score as well, even though China has an ongoing and well documented pattern of human rights abuses."
"As Utah noted S&P has removed these scores from its website, which simply fuels the concerns that Idaho has over the political and opaque nature of S&P’s ESG ratings system," they add.
The lawmakers also pointed out that "S&P is a nationally recognized statistical rating organization under Federal Law" and that their designation thereof prohibited them "from having a conflict of interest related to the issuance or maintenance of a credit rating."
"Idaho is concerned that through S&P’s memberships, such as the Net Zero Financial Service Providers Alliance, it may be in violation of the law prohibiting specific conflicts of interest by a nationally recognized statistical rating organization," they wrote.
"Based upon the above as well as the concerns and questions outlined within the letter from Utah, Idaho objects entirely to S&P’s creation, use, and publication of Idaho and Idaho political subdivision public finance ESG credit indicators. Idaho will not participate in the S&P’s abandonment of its statutorily assigned responsibility for evaluating material factors in favor of S&P’s expansion into politically biased ESG credit indicators."
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"In the future if S&P contemplates any changes to its ratings structure, the State of Idaho and its political subdivisions must be included within the process by which S&P makes any adjustments or additions to its ratings structure."
The letter was signed by each of Idaho's top officials, including Governor Brad Little; Attorney General Lawrence Wasden; State Treasurer Julie Ellsworth; Controller Brandon Woolf; Senators Jim Risch and Mike Crapo; Reps. Russ Fulcher and Mike Simpson; Idaho Senate president pro-tempore Chuck Winder; and Idaho House Speaker Scott Bedke.
An S&P spokesperson pointed FOX Business toward a company FAQ on their ESG usage in credit ratings and said the company's "ESG credit indicators reflect the influence that ESG factors have on our credit rating analysis. They are not sustainability ratings or a stand-alone assessment of an entity's ESG performance."