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Tragedy of the horizon on steroids: the green transition and credit ratings
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DOI：10.1080/09692290.2026.2654619.png)
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Abstract
En 中文
How do financial markets influence the green transition? Advocates of harnessing markets to foster the green transition claimed that market rationality is a reliable mechanism to channel investment into sustainable uses. Critics argued that financial markets are known not to be driven by rationality but by complicated social dynamics whose implications for the green transition can only be understood by studying the social coordination mechanisms that govern them. This paper studies credit ratings as a key coordination mechanism likely to influence the pricing of climate-related risks, and thus the chances of the green transition. It argues that rating agencies protect their epistemic authority, the bedrock of their business model, by not attempting to model long-term climate-related risks, thereby introducing a myopic impulse into the pricing of those risks. Using evidence from the official methodologies of Fitch, Moody’s, and Standard and Poor’s, and interviews, the paper shows that rating agencies explicitly choose to discount longer-term threats; account only for the immediate costs (but not the benefits) of mitigation, adaptation, and resiliency-building measures; and reward income-generation over proactiveness. This approach makes funding less readily available to issuers with more sustainable behavior and undermines financial stability by delaying the repricing of unsustainable assets.
Keywords:
Credit ratings
climate-related risks
green transition
market coordination
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