In this week’s edition of Economy and Society:
- State attorneys general ask SEC to scrutinize Moody’s ESG practices
- Second federal judge invalidates New York climate superfund law
- EU finalizes revised corporate sustainability reporting standards
- Glass Lewis merges with sustainability firm Clarity AI
- ISO net-zero standard fails initial vote
In the states
State attorneys general ask SEC to scrutinize Moody’s ESG practices
What’s the story?
On Sept. 24, Montana Attorney General Austin Knudsen (R) sent a letter asking the Securities and Exchange Commission's Office of Credit Ratings to scrutinize Moody's over its use of environmental, social, and corporate governance (ESG) considerations in credit ratings. Twenty-one Republican state attorneys general co-signed the letter. All but five Republican attorneys general signed onto the letter.
Moody’s is one of 11 nationally recognized statistical rating organizations (NRSROs) registered with the SEC.
The attorneys general argued Moody's relied on inaccurate climate projections in an August report assessing heat and water risks to fossil fuel companies and industries, and said its ESG-related services and commitments create undisclosed conflicts of interest.
The attorneys general criticized Moody’s use of a specific climate scenario and a separate study that they said researchers later retracted because of inaccuracies.
Knudsen wrote, "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. 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, including services like the 'Net Zero Assessment' that Moody's suggests can improve credit ratings."
The coalition asked the SEC to scrutinize Moody's practices and determine whether they comply with federal requirements. The attorneys general also called for Moody’s to explain or reverse what they described as ESG-related downgrades, use what they consider credible scientific sources, and disclose or eliminate potential conflicts related to its ESG services and commitments.
Why does it matter?
The SEC's Office of Credit Ratings examines registered credit rating agencies for compliance with federal requirements, including requirements related to rating methodologies, transparency, and conflicts of interest.
Credit ratings can affect borrowing costs for companies and governments and influence investment decisions. The attorneys general argue that ESG considerations can improperly lower ratings for fossil fuel companies and governments that depend on fossil fuel revenue. The latest letter asks the federal regulator responsible for overseeing rating agencies to examine those concerns.
What's the background?
The Sept. 24 letter follows an April letter from 23 Republican state attorneys general to Moody's, Fitch Ratings, and S&P Global Ratings. The coalition accused the three agencies of using "flawed methodologies to downgrade, or to threaten to downgrade, states and municipalities with fossil-fuel production revenues" and asked the companies to change several ESG-related practices.
Twenty Democratic state attorneys general responded in an Aug. 27 letter to the SEC, writing that the Republican attorneys general's "conclusions are based on factual inaccuracies and distortions to support the flawed proposition that, in light of the current U.S. federal administration, climate and energy transition risks are no longer valid concerns."
Second federal judge invalidates New York climate superfund law
What's the story?
U.S. District Court Judge P. Kevin Castel of the Southern District of New York invalidated New York's Climate Change Superfund Act last week, ruling that federal law preempts the state's effort to require fossil fuel companies to pay for climate-related costs.
The law, enacted in 2024, established a climate adaptation cost-recovery program requiring certain fossil fuel companies to pay a combined $75 billion over 25 years toward infrastructure and other projects intended to help the state adapt to climate change.
Castel granted the U.S. Department of Justice's motion for summary judgment and permanently blocked enforcement of the law. Castel ruled that the federal government had standing to challenge the law and that it was preempted on two grounds:
- The Clean Air Act displaced federal common law governing interstate emissions and did not authorize New York's approach.
- The law imposed costs related to activities outside the United States, intruding on the federal government's authority over foreign affairs.
The decision marks the second time in less than a month that a federal judge has ruled against the Climate Change Superfund Act. Chief Judge Brenda Sannes of the Northern District of New York blocked the law on Aug. 31 after a coalition of 22 Republican state attorneys general and energy industry groups filed a separate lawsuit.
The Justice Department brought the lawsuit as part of the Trump administration’s broader ESG-related policy agenda, including efforts to challenge state climate and energy policies.
Why does it matter?
The ruling further limits New York's effort to make fossil fuel companies pay for infrastructure and other costs associated with adapting to climate change. With two federal district courts now ruling against the law, the decisions also contribute to a broader legal dispute over how far states can independently impose financial liability on companies for greenhouse gas emissions associated with activity outside their borders.
The dispute extends beyond New York. Vermont enacted a similar climate superfund law, which the Justice Department has also challenged in federal court.
What's the background?
Gov. Kathy Hochul (D) signed the Climate Change Superfund Act in December 2024. The law assigns liability to certain fossil fuel companies based on greenhouse gas emissions attributed to fossil fuel extraction and crude-oil refining from 2000 through 2024.
A coalition of 22 Republican state attorneys general and energy industry groups challenged the law in 2025. Sannes ruled in their favor on Aug. 31, finding that the Clean Air Act and the federal government's foreign affairs powers preempted the law.
The Justice Department separately sued New York over the law after President Donald Trump (R) issued an executive order in April 2025 directing the attorney general to identify and take action against state and local energy policies the administration determined may be unconstitutional, preempted by federal law, or otherwise unenforceable. The order specifically identified New York's Climate Change Superfund Act.
Around the World
EU finalizes revised corporate sustainability reporting standards
What’s the story?
The European Union published revised European Sustainability Reporting Standards (ESRS) in its Official Journal on Sept. 21, completing the adoption process for changes intended to reduce companies’ sustainability reporting requirements.
The ESRS establishes the ESG information that companies subject to the EU’s Corporate Sustainability Reporting Directive (CSRD) must disclose. The standards cover topics including climate change, pollution, biodiversity, workers, affected communities, and business conduct.
The European Commission adopted the revisions in July as part of a broader effort to simplify the EU’s sustainability rules. The revised standards cut mandatory reporting data points by more than 60% and total data points by more than 70%, while simplifying how companies determine which sustainability information they must report.
The regulation enters into force Nov. 10. Companies subject to the requirements must use the revised standards for financial years beginning on or after Jan. 1, 2027.
What’s the background?
The EU adopted the CSRD in 2022 to expand corporate sustainability reporting and require covered companies to use common reporting standards. The European Commission adopted the first ESRS in 2023.
The Commission began revising the standards as part of its Omnibus I initiative to simplify EU sustainability requirements. The initiative also proposed reducing the number of companies subject to the CSRD. The Commission said the ESRS revisions are intended to reduce reporting burdens while preserving information investors and other stakeholders use to assess companies’ sustainability-related risks and their effects on people and the environment.
On Wall Street and in the private sector
Glass Lewis merges with sustainability firm Clarity AI
What's the story?
Glass Lewis, a proxy advisory firm, and Clarity AI, a sustainability data and analytics company, both privately held, announced Sept. 24 that they had merged. The transaction closed Sept. 23, and the companies did not disclose financial terms.
Proxy advisory firms provide research and recommendations to institutional investors on how to vote at corporate shareholder meetings. Glass Lewis says it serves more than 1,300 investment managers and pension funds. Clarity AI provides sustainability data, analytics, and technology to financial institutions.
The companies said the combined platform will connect investment analysis and sustainability data with corporate governance research, shareholder engagement, proxy voting, and reporting. They also said the combination will expand their services for European institutional investors and companies.
Glass Lewis CEO Bob Mann said, "This union brings together two highly complementary sets of capabilities to support clients across the full decision-making ecosystem, from portfolio construction and monitoring to research, engagement, voting and reporting."
The merger combines a major proxy advisory firm with a company that provides sustainability data and analysis, bringing services related to ESG research, corporate governance, and shareholder voting onto the same platform. The deal deepens the ESG-related offerings of one of the two firms that account for the large majority of the U.S. proxy advisory market, at a time when proxy advisors' consideration of ESG factors is facing growing legal and regulatory scrutiny.
What's the background?
According to a 2025 Congressional Research Service report, Glass Lewis and Institutional Shareholder Services (ISS) account for more than 90% of the proxy advisory market. President Trump (R) issued an executive order in December 2025 directing the Securities and Exchange Commission to review rules governing proxy advisors, including their consideration of ESG and diversity, equity, and inclusion factors.
Glass Lewis faces increased scrutiny in the United States over its proxy voting recommendations and consideration of ESG factors. Five states enacted proxy advisor disclosure laws in 2026, and federal courts have temporarily blocked the Kansas and Indiana laws. Texas Attorney General Ken Paxton (R) also sued Glass Lewis in July, alleging the company misrepresented how ESG considerations influence its voting advice. Glass Lewis has denied the allegations.
ISO net-zero standard fails initial vote
What’s the story?
A proposed international standard for corporate net-zero strategies failed to receive enough support to advance following a vote among members of the International Organization for Standardization (ISO), an independent organization that develops voluntary international standards. The vote on the draft ISO 14060 standard closed Sept. 10.
ISO 14060 would establish requirements for organizations to demonstrate that their net-zero strategies, targets, and progress are compatible with reaching net zero and contributing to global net-zero emissions in line with the Paris Agreement. The proposed standard would apply to organizations rather than individual products.
An ISO representative said the draft “did not receive the level of approval required to advance in its current form.”
ISO does not disclose individual countries’ votes or their reasons for voting. The organization’s project page shows that the draft was referred back to the technical committee.
What’s the background?
ISO released the draft standard for a 12-week consultation and voting period in June. ISO said hundreds of experts from business, government, academia, civil society, and standards organizations participated in nearly two years of negotiations to develop the draft.
The proposed standard builds on ISO’s Net Zero Guidelines, published in 2022. Unlike those guidelines, ISO 14060 is being developed as an international standard with requirements that could be independently assessed.
ISO said in June that the standard is intended to provide a common framework for organizations developing net-zero transition plans and to address demand from businesses, policymakers, and investors for more consistent approaches to transition planning.
