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Kentucky GOP leaders say S&P credit score calculation is ‘political subjugation’

Ryan Van Velzer

Kentucky State Treasurer Allison Ball has written a letter to one of three big credit rating agencies criticizing the inclusion of environmental, social and governance factors in its credit score for Kentucky.

Standard & Poor’s Global Ratings began including the factors as part of its credit ratings for states back in March. Kentucky received a neutral rating on climate and governance indicators, but a slightly negative score for social factors, including an aging population.

Ball wrote the new factors unfairly politicize credit ratings and place subjective judgments on a rating that should be solely based on financial factors. She compared the ratings to China’s authoritarian social credit system and urged S&P to drop the changes.

“It creates a dangerous framework for state borrowing mechanisms, whereby state creditworthiness will fluctuate wildly based on ever-changing political tides,” Ball wrote.

The state treasurer wrote the letter on behalf of four other Republican elected officials including State Auditor Mike Harmon, Secretary of State Michael Adams, Attorney General Daniel Cameron and Agricultural Commissioner Ryan Quarles.

The letter is the latest in a series of measures Ball and other state GOP officials have taken to resist the influence of climate change on long term decision-making.

Earlier this year, Ball supported legislation that generally requires financial companies working with the state to cease boycotts of the fossil fuel industry. If they don’t, the state has to divest all public investments from the firm.

Republican Ky. Attorney General Daniel Cameron wrote an open letter in late June to the EPA on behalf of 14 states calling its plan to limit ozone pollution and greenhouse gases “arbitrary, capricious” and in excess of the agency’s authority.

In the letter to S&P, Ball wrote the new ratings system would hurt Kentucky’s economy because of its reliance on fossil fuels.

“A reduction in coal, oil, and gas production would cause increased unemployment, higher fuel costs, and a decrease in overall tax revenue, thereby negatively impacting Kentucky’s overall creditworthiness and causing undue hardship and suffering for the people of this state,” she wrote.

S&P’s rating system considers climate transition risks, waste and pollution, natural disasters and biodiversity in its analysis.

“For the oil and gas as well as unregulated power industries, we consider such risks as most pronounced and severely affecting such industry criteria subscores,” according to S&P’s website.

Back in May, the U.S. Securities and Exchange Commission proposed similar disclosures from investment advisers that take environmental, social and governance factors into consideration.

“It is important that investors have consistent and comparable disclosures about asset managers’ ESG strategies so they can understand what data underlies funds’ claims and choose the right investments for them,” Chair Gary Gensler wrote in a statement.

The American Institute of Certified Public Accountants supports the SEC’s efforts saying that shareholders have demanded a broader base of information on which to make decisions.

“Integrated thinking and related disclosures about the range of financial and non-financial factors that affect a company’s ability to create value is required in our complex, interdependent world,” wrote CEO Susan Coffey.

Kentucky is already experiencing the impacts of climate change. In the coming decades, the state will become warmer, and wetter, with increased risks for severe droughts, heatwaves and other natural disasters.

Humankind has profoundly increased the levels of heat-trapping gasses in the atmosphere through burning fossil fuels, according to NASA. We have a limited amount of additional greenhouse gases we can add to the atmosphere before we drastically disrupt planetary systems including the biosphere, the hydrosphere and the atmosphere.

Scientists with the United Nations Intergovernmental Panel on Climate Change say this decade is humankind’s last opportunity to limit warming to at least 1.5 degrees Celsius and avoid the worst impacts of climate change, but it will require deep emissions cuts and a major transition in the energy sector.

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Ryan Van Velzer