The role of rating agencies in the climate crisis: the Latin American experience

• Grant number: 24/11278-4
• Support Opportunities: Scholarships in Brazil - Post-Doctoral
• Start date: April 01, 2025
• End date: March 31, 2028
• Field of knowledge: Applied Social Sciences - Urban and Regional Planning
• Principal Investigator: Arilson da Silva Favareto
• Grantee: Pedro Lange Netto Machado
• Host Institution: Centro Brasileiro de Análise e Planejamento (CEBRAP). São Paulo , SP, Brazil

Abstract

This research aims to examine the behavior of rating agencies in the face of the experience of countries whose governments adopt policies that conflict with the sustainability agenda. In the context of the climate emergency, studies on green finance have sought to understand the role of different actors in the financial system when faced with the challenges posed by global warming. With regard to rating agencies, International Political Economy (IPE) literature traditionally addresses the controversies surrounding their actions, whose alignment with the sustainability agenda remains uncertain. This gives rise to the questions that guide this research: How can policies that are detrimental to the sustainability agenda affect sovereign ratings and what does this mean for the role of rating agencies in green finance? In order to answer these questions, I propose to carry out this study in two stages. First, by examining the documents relating to the sovereign rating methodology of the rating agencies (S&P Global, Moody's and Fitch), taking into account the incorporation of climate risks and other adaptations made in favor of the sustainability agenda. Secondly, by carrying out three case studies (Brazil, Guyana and Mexico) on the experiences of countries whose governments have adopted policies that run counter to the demands of climate and environmental challenges. The aim is to trace the influence of these measures on the final product issued by the rating agencies to assess countries' creditworthiness in sovereign debt markets, i.e. the sovereign rating. In this way, the work aims to contribute to advancing the research agenda on green finance by combining it with the IPE agenda on the role of rating agencies in the global financial order.