Twenty-two state attorneys general are charging that Moody's, one of the most powerful credit rating agencies in the world, has been using abandoned science and undisclosed conflicts of interest to punish energy companies and the states that depend on them. Now they're demanding the SEC do something about it.
The latest complaint centers on an August Moody’s report using Representative Concentration Pathways (RCP) 8.5, an extreme emissions scenario, to project future heat and water risks for American industry. Moody’s said the analysis could help insurers, lenders and investors “stress-test exposure” and price future risks.
There’s one rather large problem with using RCP 8.5. Researchers working on the next generation of climate scenarios concluded earlier this year that it had become implausible based on emissions trends, climate policy and other developments. The federal Office of Science and Technology Policy has also proposed against using RCP 8.5 as a baseline for the Fifth National Climate Assessment, calling it “implausible” and not “policy-relevant” for federal planning.
Knudsen and the other attorneys general aren't amused.
“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.
This isn't Moody's first rodeo. In April, 23 state attorneys general accused all three major ratings agencies of using junk ESG predictions to downgrade energy companies and states while hiding the conflicts driving those decisions.
Moody’s August report covered roughly 159,000 water-intensive U.S. facilities in mining and quarrying, food and beverage production, and heavy manufacturing. About 49,000 could face high or very high water stress in the coming decades, according to the company’s projection.
$41 trillion. That's the figure Moody's continues to feature prominently on its website, based on a 2024 climate-economics paper that was retracted for serious errors. That retracted paper fed the NGFS "Phase 5" damages model, which fed Moody's estimate, meaning the number is two steps removed from discredited science, compounded by its reliance on the same abandoned RCP 8.5 scenario. The attorneys general say continuing to promote that figure while selling ESG-related products raises serious questions about undisclosed conflicts of interest.
Knudsen was more direct:
“This effort to push insurers, lenders and investors towards basing decisions on dire ESG predictions is consistent with undisclosed material conflicts of interest regarding Moody’s ESG-related services, commitments, and goals.”
And these ratings cost real money. They can affect borrowing costs and investment decisions for oil and gas companies as well as entire states. The attorneys general point specifically to Alaska and Wyoming, where ratings agencies have cited the states’ dependence on fossil-fuel industries and revenues in assessing their finances. The coalition argues that continuing to use ESG assumptions that haven't kept up with the evidence can leave taxpayers and energy-producing states paying the price.
They want Moody's to explain or reverse ESG-driven downgrades, use credible scientific sources, and either withdraw from ESG commitments and related consulting work or disclose potential conflicts. The coalition is also evaluating antitrust action. Earlier this year, Vanguard agreed to pay $29.5 million to settle a multistate antitrust lawsuit over alleged ESG-driven conduct in the coal industry and accepted restrictions on using its holdings to impose ESG goals.
ESG was sold for years as prudent risk management. The evidence underneath it has collapsed, and Moody's is still selling it.