Utah blasts S&P Global over 'politicized' state ESG indicators

Utah's governor and its federal lawmakers are objecting to S&P Global's move to publish ESG scores for U.S. states, calling it an undue politicization of the ratings process.

In a letter sent to the firm on Thursday, the politicians — all Republicans — lay out a lengthy rebuke of S&P's move to release environmental, social and governance assessments, or a so-called ESG score. Despite Utah's results falling in line with many other states, the officials argue S&P should focus strictly on financial fundamentals.

"S&P's ESG credit indicators politicize what should be a purely financial decision," reads the letter, which was obtained by Bloomberg News. It was signed by Governor Spencer Cox, Senators Mike Lee and Mitt Romney, all four of the state's members of the House, as well as its treasurer and attorney general.

The letter also demands the report is withdrawn, seeks more information from S&P and says the state won't cooperate in gathering ESG criteria.

S&P has said ESG credit factors are those that "can materially influence the creditworthiness of a rated entity or issue and for which we have sufficient visibility and certainty to include in our credit rating analysis," and that they are "applied after the credit rating has been determined."

The ratings agency didn't immediately reply to a request for comment sent outside of normal business hours regarding the letter.

The row is the latest saga in the emergence of the indicators, which advocates say give a full picture of an entity's outlook but critics say stray too far from core financial matters.

Institutional investors like Blackrock and pension funds are demanding greater clarity from companies on their efforts to diversify their workforces and address a changing climate. Companies seen as under-performing on certain ESG metrics risk challenges to their board from activist investors.

Meanwhile, GOP lawmakers and powerful industry groups, including the U.S. Chamber of Commerce, have opposed increased activity by financial watchdogs on ESG issues. Some Republicans have complained that ESG indicators are skewed to a progressive viewpoint, and have encouraged companies and other organizations to reject the metrics.

S&P's ESG indicators include categories like human rights, social integration, low-carbon strategies, climate measures and sustainable finance.

The ratings agency assigned Utah ESG ratings in a credit indicator report published March 31, scoring environmental as "moderately negative," and social and governance as "neutral." The firm said the scores are not a sustainability rating or a formal ESG evaluation.

The vast majority of states' ratings were "neutral."

S&P's Utah report cited a concern about long-term water supply in the Colorado River basin, though it added that the state's planning "helps to alleviate additional pressure" in the analysis. Over a dozen states received the same environmental rating, including California, New York, Texas, Florida and others, while two others, Alaska and Wyoming, received a "negative" environmental rating.

Nonetheless, the letter from Utah's governor and the lawmakers demanded that S&P withdraw the assessment and stop publishing them.

"We view this newfound focus on ESG as politicizing the ratings process. It is deeply counterproductive, misleading, potentially damaging to the entities being rated, and possibly illegal," they wrote.