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India’s Draft Climate Finance Taxonomy: A Powerful Step Toward Sustainable Investment
India’s Draft Climate Finance Taxonomy: A Critical Move to Tackle Greenwashing
Context:
In line with India’s climate commitments and Budget 2024-25 announcement, the Ministry of Finance has released a draft framework for a Climate Finance Taxonomy aimed at enabling clean energy investments and preventing greenwashing.
More in News: Aligning Finance with Climate Goals
- Objective: Direct capital towards climate-friendly projects and infrastructure while ensuring long-term energy access.
- Announced in line with the Union Budget 2024–25 and India’s commitment to become Net Zero by 2070.
- Consultation and Feedback Process
- The draft has been opened for public consultation.
- Deadline for comments: June 25, 2025.
- Inclusive approach to incorporate feedback from:
- Financial institutions.
- Private sector investors.
- Climate experts and civil society.
Global Context and India’s Position
- Taxonomy frameworks already exist or are in development in the EU, UK, Singapore, Hong Kong, Canada, and Australia.
- India joins the global initiative to ensure transparency and comparability of green investments.
- At COP29 in Baku, disputes arose due to the lack of a clear definition of ‘climate finance’:
- Developed countries committed $300 billion/year by 2035, while the actual requirement is $1.35 trillion.
- Disagreement on definition affects global climate funding flows.
What is a Climate Finance Taxonomy?
- A climate finance taxonomy is a classification tool to:
- Identify activities aligned with climate action goals.
- Guide investors and policymakers in channelling funds to green and resilient projects.
- It acts as a standardised framework to distinguish between truly sustainable and greenwashed investments.
Classification Structure: Two Main Categories
- Climate-Supportive Activities:
- Activities that:
- Reduce absolute emissions.
- Lower emissions intensity (emissions per unit of GDP).
- Contribute to climate adaptation (resilience against weather shocks).
- Support R&D aligned with climate goals.
- Sectors covered:
- Power, Mobility, Buildings.
- Agriculture, Food and Water Security.
- Projects with both mitigation and adaptation co-benefits.
- Activities that:
- Transition-Supportive Activities:
- Focus on emissions intensity reduction where absolute emissions cuts are not yet viable.
- Especially relevant for hard-to-abate sectors such as: Iron, Steel, Cement.
- Encourage incremental transitions until zero-emission technologies mature.
Need for a Climate Finance Taxonomy
- India aims to:
- Achieve Net Zero by 2070.
- Reduce emissions intensity of GDP by 45% by 2030.
- Ensure 50% of electric power from non-fossil sources by 2030.
- Requires $2.5 trillion investment to meet 2030 goals.
- Prevent greenwashing in climate finance.
- Ensure alignment with development goals, particularly Viksit Bharat vision.
Key Objectives of India’s Taxonomy Framework
- Facilitate capital inflow to:
- Climate-resilient technologies.
- Low-carbon and adaptation activities.
- Prevent greenwashing and ensure credibility of green-labelled projects.
- Promote technological innovation and R&D in climate sectors.
- Provide clarity and confidence to domestic and global investors.
