Yes, climate change (still) matters in private markets

Private companies face competing priorities as they navigate climate-related risks and opportunities within a rapidly evolving policy and regulatory environment. In this paper, we share our advice (and resources) to help you meet the expectations of your customers, investors, and regulators and set your company up for long-term success.

How do climate-related risks and opportunities intersect with corporate strategy?

We believe the risks and opportunities associated with climate change (both the energy transition and the worsening events exacerbated by climate change) should be evaluated through the lens of financial materiality. The resulting prominence within corporate strategy will naturally differ by industry and business model. These factors can impact a broader range of companies than you might expect, for example:

• A consumer products company’s manufacturing facility is in an area that experiences extreme, sustained heat. Working conditions during these types of heat events result in reduced productivity, higher employee recordable incident and absentee rates, and the need to consider new capital expenditures to upgrade the facility’s cooling system.
• Data center operators and substantial data users experience higher operating costs and lower margins due to rising electricity prices, water scarcity, and innovative cooling technologies. Capital expenditures may be required to offset these costs over time by procuring on-site renewables, securing power purchase agreements, and embedding more efficient cooling to reduce water needs.
• To accelerate progress in meeting its greenhouse gas (GHG) reduction targets and respond to consumer preferences, an international hotel chain invests in new technology vendors to automate both energy efficiency initiatives and data tracking at its properties.

What are the climate-related disclosure expectations for private companies?

The need for private companies to evaluate and disclose their climate-related risks and opportunities comes from multiple stakeholders. Below, we explore how customers, investors across both public and private markets, and regulators each have their own distinct expectations.

Customers

Supply chain resilience has become a higher strategic priority for many companies over the last several years, following vulnerabilities that were highlighted by the global pandemic, geopolitical tensions and tariff implementation, and extreme weather events. Disruptions like these can create bottlenecks, increasing lead times and prices for key production inputs.

Notably, large companies are increasingly measuring and disclosing Scope 3 emissions and physical risks associated with their diversified supply chains. Though this effort helps improve supply chain transparency, the accuracy of these disclosures necessitates more detailed information from suppliers well beyond tier-1 suppliers. In 2025, more than 270 major buyers requested 45,000 suppliers to disclose through CDP’s Supply Chain program. CDP has tailored its questionnaire for small and medium enterprises (SMEs), resulting in nearly 11,000 small companies submitting disclosures.¹ We believe private companies that are prepared to respond to such requests from key customers (both current and potential) could create a competitive advantage.

Investors

There is also growing awareness across the globe that both climate change and the resulting strategic transition it is fueling matter for returns and the stability of the financial system. This is exemplified in initiatives such as the Net Zero Asset Managers initiative, the International Sustainability Standards Board, the Institutional Investors Group on Climate Change’s Paris Aligned Investment Initiative, and the UN PRI’s Net-Zero Asset Owner Alliance.

While these considerations are particularly relevant for private companies as they approach a public offering, commitments to decarbonization extend across asset classes. We therefore think investor expectations for disclosure by private companies are likely to catch up to public companies over time. Despite the divergence and uncertainty in climate-related policy around the world, many private-market investors continue to integrate environmental factors into their investment processes because they believe these can have a material impact on financial performance.² For example, the ESG Data Convergence Initiative, the leading standard for ESG data collection in private markets, includes questions about decarbonization ambitions, targets, and strategy in its standard data collection template.

Regulators

Finally, climate disclosure requirements are evolving globally as regulatory regimes increasingly view them as a tool to promote well-functioning markets. For instance, the European Union’s (EU’s) Corporate Sustainability Reporting Directive (CSRD) requires large companies to disclose their policies around environmental protection.

In addition, following their substantial uptake across the globe, the Task Force for Climate-related Financial Disclosures’ (TCFD’s) recommendations have now been fully incorporated into the ISSB Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. Nearly 40 jurisdictions, representing about 40% of global market capitalization, have already decided to use, or are taking steps to introduce, ISSB Standards in their legal or regulatory frameworks.³

In the United States, there are divergent policy signals at the federal and state level. At the federal level, the Trump administration has relaxed climate policy, including scrapping climate disclosure rules by the SEC and repealing the 2009 Endangerment Finding, which is the legal foundation to regulate greenhouse gases due to the danger they pose to public health. The legal challenges related to this repeal are indicative of the fluidity of climate policy at the federal level. On the other hand, state-level regulations are expanding disclosure requirements, among other expectations of companies. For example, California signed two climate regulations into law in October 2023 that require all companies (public or private) that “do business in California” to disclose:

• SB 253 (Climate Corporate Data Accountability Act) – Scopes 1, 2, and 3 GHG emissions, where total annual revenues exceed US$1 billion
• SB 261 (Climate-related Financial Risk Act) – Climate-related financial risk, in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) framework, and measures to mitigate or adapt to that risk where total annual revenues exceed US$500 million

Though these laws were due to come into effect in January 2026, certain aspects remain subject to appeals. While we monitor these developments, we expect that required reporting of Scope 1 and 2 emissions may be the most resilient to litigation challenge. For private companies operating globally, it is critical to be prepared to navigate these nuances across jurisdictions.

How can Wellington’s value creation and climate resources help our private companies?

We’re continuing to expand our climate research capabilities across both public and private markets. Our ongoing collaborations with Woodwell Climate Research Center and the MIT Center for Sustainability Science and Strategy help to deepen and broaden our understanding of the intersections between climate change and capital markets. This includes developments like our geospatial mapping tool.

In our view, these capabilities make Wellington a strong partner for private companies as they consider climate-related risks. For example, a few common areas of climate-focused collaboration with our private portfolio companies include:

• Making sense of the “alphabet soup” of sustainability-related regulations and requirements by contextualizing the importance and application of each. This helps to increase fluency and educate management teams and board members.
• Evaluating where climate fits into each company’s corporate strategy by sharing materiality mapping and peer benchmarking assessments. This helps portfolio companies prioritize key climate factors amid other E, S, and G topics.
• Facilitating introductions to companies that provide carbon accounting and vendor risk management software for portfolio companies looking to measure GHG emissions or enhance supply chain transparency.
• Leveraging our geospatial mapping tool to assess the risk of extreme weather events at new sites for portfolio companies seeking to expand their operations or supply chain.

To help our portfolio companies get started, we have put together a series of resources to consider that includes questions to expect from public-market investors, suggested reading, and a list of key terms.

Appendix A: Climate questions to expect from public-market investors
We believe boards of directors and management teams will be expected to answer the following questions with the appropriate level of ESG expertise, particularly when climate-related issues arise.

Appendix B: Suggested reading and resources

Measurement and disclosure

• Measuring material emissions: Greenhouse Gas Protocol (GHG Protocol) Corporate Accounting and Reporting Standard, Scope 3 Calculation Guidance, and Product Life Cycle Accounting and Reporting Standard
• Best practice for material climate risk disclosure: IFRS S2 Climate-related disclosures, established by the International Sustainability Standards Board (ISSB)
• Assessing and disclosing physical risks: Wellington’s Physical Risks of Climate Change framework

Assessment of climate risk exposure and management tactics

• Enterprise risk management of physical risks: ISO 14090, Adaptation to Climate Change – Principles, requirements and guidelines
• Setting emissions reduction targets: Science Based Targets initiative’s (SBTi’s) development of sector-specific methodologies for corporate science-based target-setting

Appendix C: Defining key climate terms

• Transition risks versus physical risks: Transition risks relate to the cause of climate change (emissions in the atmosphere) and the remediation of the cause, referred to as mitigation. Physical risks relate to the effect of climate change (acute and chronic climate events) and lessening the impact of these on societies and assets, referred to as adaptation.
• Carbon emissions “scopes”
  • Scope 1: Direct from operations, such as factories or vehicles owned by the company
  • Scope 2: Emissions associated with electricity consumed by operations
  • Scope 3: Indirect emissions associated with the supply chain and full life cycle of products/services. Measuring Scope 3 helps companies identify opportunities for collaboration and influence across industry verticals and for investing in innovation to evolve product lineups. There are 15 subcategories, divided between two categories:
    • Upstream: purchased goods (think materials, transport, and waste of production inputs/costs of goods sold)
    • Downstream: use of sold products (think automobile emissions post sale), investments

¹CDP, Keeping Pace: Disclosure Data Factsheet 2025. | ²PitchBook, Sustainable Investment Survey, September 2025. | ³IFRS, Adoption status of ISSB Standards, September 2025.