For its ESG credit indicator report card, S&P said states typically have tools to mitigate risks and scored the majority neutral or moderately negative. 

The three firms’ approach to ESG differ slightly and comes amid an investor push for such information. 

“There is financial materiality to a lot of these factors,” said Lauren Kashmanian, director of portfolio management and responsible investing at Parametric Portfolio Associates, citing the effects of rising sea levels and weather events as examples.

The rating companies themselves argue that issues like climate risk can affect a government’s financial outlook. For example, erosion of waterfronts or the danger of massive fires or social unrest can be costly for cities and states.

Earlier this month, S&P released a follow-up report about its ESG indicators, answering questions such as, “How is ESG relevant to credit ratings?” (S&P’s answer: When it’s material to creditworthiness and sufficiently visible.) “Can ESG credit indicators cause upgrades or downgrades?” (No.)

Utah Showdown
The dispute is getting heated in Utah, where S&P said Utah’s environmental factors are a moderately negative consideration and the state faces elevated natural capital risk due to long-term challenges regarding water supply.  

State officials in April slammed S&P for its scorecard, with Governor Spencer Cox and lawmakers sending the company a letter calling it an undue politicization of the ratings process. State Treasurer Marlo Oaks labeled it “corporate cancel culture,” and asked S&P to rescind the ESG metric. 

S&P refused. Eden Perry, head of the firm’s U.S. public finance practice, last week sent Oaks a letter stating the company “will not allow any issuer to inappropriately influence our analytical processes or our credit rating opinions,” according to a copy of the letter obtained by Bloomberg News. 

In an interview, Oaks said Perry’s letter didn’t address his concerns, and the shift to more ESG assessments is a way of “weaponizing capital.” Oaks said investors he meets with don’t see any value in ESG analysis, but declined to name any because he said there is fear of being “canceled.”

“ESG will essentially fundamentally change how we do business in the U.S.,” he said.