As private credit continues to scale, the urgency for clearer climate disclosures and more uniform visibility into financial risk is mounting – and new US legislation is poised to accelerate progress.
Once a niche instrument, private credit has become a central pillar of global finance, with outstanding loan volumes rising from $100 billion in 2010 to $1.2 trillion in 2025. Yet the sector often operates with limited transparency.
Private credit lenders finance companies across the economy, including carbon-intensive industries, making them vulnerable to climate-related risks. While public companies have made basic disclosures, private markets remain largely opaque, creating a material informational gap.
Reform is needed. Consistent reporting is essential for private lenders to assess long-term risk and resilience. Thanks to new state-level legislation, progress is coming.
California’s Climate-Related Financial Risk Act (SB 261), effective 1 January 2026, requires US public and private companies with more than $500 million in annual revenue doing business in California to disclose their climate-related financial risks. Covering an estimated 10,000 companies, many of which have never faced such requirements, this legislation will have a global impact.
For the first time, private companies will be required to publicly report how climate change affects their financial outlook. Disclosures will follow the Task Force on Climate-related Financial Disclosures framework, covering governance, strategy, risk management, and metrics and targets.
What sets the act apart is the creation of a “public docket”, requiring companies in scope to disclose where their reports are posted.
This mechanism forms a “climate data intelligence hub”, offering a consistent, accessible view into how companies manage climate financial risk. Unlike scattershot ESG reports, these disclosures will be comparable, and will align with widely recognised standards like TCFD and the Greenhouse Gas Protocol. The docket will allow investors and lenders to benchmark risk disclosures, identify leaders and laggards, and track best practices.
For the private credit market, this is transformative. Historically, assessments across private markets have relied on inconsistent data. The act will deliver decision-useful information to help better future-proof portfolios and may spark new climate risk compliance covenants in loan terms.
Overdue opportunity
Climate transparency isn’t just about emissions – it’s about how climate risk impacts cashflows and returns over time. The act should be viewed not only as a new obligation, but as an overdue strategic opportunity.
Many companies uncover overlooked vulnerabilities or new opportunities when mapping climate impacts across supply chains and operations. Public access to disclosures will create market-driven pressure, rewarding leaders and scrutinising laggards. Even companies not directly covered by the act may feel compelled to disclose to remain competitive.
Supply chain demands from larger firms will draw smaller partners into the framework, reinforcing comparability and expanding network effects. Transparency will drive resilience, innovation and competitive advantage.
As structured disclosures begin, the reputational stakes rise – particularly among the investor class. Silence will become noticeable. Companies that don’t disclose will face questions from stakeholders, especially as their peers publish detailed climate risk assessments, and identify strategies to mitigate them or drive new opportunities.
Concurrently, the marketplace as a whole will gain a deeper understanding of climate financial risk, along with strategies to manage it. In this way, regulatory transparency requirements not only expose vulnerabilities, but they also build resilience and open pathways to new business opportunities.
The act’s influence will not stop at California’s borders. As a global economic powerhouse, the state’s regulatory move will set precedents. International investors, ratings agencies and insurers are already working to adopt and expand this model and the data disclosed as a reference point. Because climate risk is financial risk.
The act will not solve every data gap. Nevertheless, it sets a new baseline for climate risk accountability in private markets through a standardised, public mechanism. For the first time, lenders and investors will have a window into private company climate risk exposure and response strategies.
The era of limited climate financial risk visibility in private finance is ending, giving way to a more transparent and resilient market. This shift will create opportunities for those prepared to seize them.
Kristina Wyatt is chief sustainability officer at Persefoni AI and a former special senior counsel for climate and ESG at the US Securities and Exchange Commission.
