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India has taken a decisive and future-ready step in its climate journey. With the release of the draft Framework for India’s Climate Finance Taxonomy by the Department of Economic Affairs under the Union Ministry of Finance, the country has moved to build a transparent, accountable, and investment-friendly ecosystem for green finance. This move not only fulfils Finance Minister Nirmala Sitharaman’s Union Budget 2024 promise but also signals India’s readiness to lead in defining what climate-aligned development looks like in the Global South.
In a world facing cascading climate and economic shocks, this taxonomy is not just a bureaucratic tool—it is a strategic lever for systemic transformation.
A climate finance taxonomy serves as a standardised classification system to help policymakers, investors, and businesses identify and support economic activities that contribute to climate goals. It brings coherence, trust, and comparability into the highly fragmented world of green finance. For a country like India—poised to become a $5 trillion economy and simultaneously facing the world’s most complex climate risks—such a taxonomy is both timely and necessary.
Although climate finance has expanded at an unprecedented pace in recent years—reaching USD 1.46 trillion in 2022—it remains significantly below what is required to meet global climate goals. According to one of the reports titled Global Landscape of Climate Finance, an estimated USD 7.4 trillion in annual investment is needed worldwide through 2030. Of this, at least USD 2.4 trillion must be directed to emerging markets and developing economies (EMDEs), excluding China. Notably, EMDEs are among the most vulnerable to the adverse effects of climate change, despite contributing relatively little to global greenhouse gas emissions.
The document’s release also aligns with long-standing global expectations that emerging economies must improve domestic “enabling environments” to better absorb international climate finance. India’s taxonomy does exactly that—without compromising on national priorities.
Designed as a “living document”, the Indian taxonomy is built to evolve with changing climate needs, technological innovations, and market shifts. The initial draft lays out a comprehensive approach across three key climate pillars: mitigation, adaptation, and transition of hard-to-abate sectors.
From power and transport to agriculture and water security, the taxonomy identifies critical sectors for decarbonisation and climate resilience. Particularly significant is its treatment of hard-to-abate sectors such as cement, iron, and steel—often ignored in green finance discussions due to their complexity.
The classification mechanism is equally forward-looking. Activities will fall under climate-supportive or transition-supportive categories, with further tiering to accommodate the realities of Indian industry and infrastructure. This allows the taxonomy to remain ambitious without being exclusionary - a fine balance that many global taxonomies fail to achieve.
By combining qualitative objectives with quantitative thresholds, the taxonomy offers a multi-layered and flexible framework. It ensures environmental integrity while giving investors and implementing agencies the clarity they need to avoid greenwashing—a persistent challenge in the global finance discourse.
The strategic timing of this release cannot be overstated. As the world navigates the “Baku to Belem” roadmap under Brazil’s COP30 presidency—tasked with delivering $1.3 trillion in annual climate finance—the onus is on developing nations to demonstrate domestic readiness. India’s taxonomy sends a strong, confident message to global stakeholders: We are ready, we are credible, and we are investing in our own transformation.
Moreover, India’s alignment with ASEAN principles in the taxonomy is both politically and economically significant. It reinforces regional cooperation while setting a new benchmark for emerging economies seeking to build their own sustainable finance pathways.
Notably, as of April 2024, only 10% of developing and emerging economies had published green finance taxonomies. India’s move positions it as a trailblazer, opening the door to more bilateral climate finance agreements, blended finance models, and responsible private investment.
The taxonomy is not just about mobilising global capital—it’s about structuring India’s transition to a Viksit Bharat by 2047. It operationalises the vision of climate-smart growth, making sure that every rupee spent in the name of sustainability delivers long-term climate, social, and economic value.
Through this taxonomy, India is sending a message that green finance is not a luxury—it is core to our development planning, to our food and water security, to job creation, and to building resilient infrastructure. It strengthens the Atmanirbhar Bharat agenda by enabling industries to attract climate-aligned investment and innovate towards clean technologies.
In short, the taxonomy is a bridge between India’s climate commitments and its economic aspirations.
While the draft framework is ambitious and thoughtfully constructed, its real success will depend on implementation, governance, and stakeholder uptake. Future iterations must provide more detailed sectoral annexures, lay out performance thresholds, and develop mechanisms for transparency, reporting, and verification.
Moreover, capacity-building across state governments, financial institutions, and industries will be crucial to making the taxonomy not just a compliance tool, but a strategic enabler of green growth.
The public consultation process opens until June 25, 2025, is a valuable opportunity to shape a more inclusive, effective taxonomy that works for all stakeholders—from large corporates to grassroots entrepreneurs.
India’s draft climate finance taxonomy marks a pivotal shift in our climate narrative. It offers a roadmap that’s not only aligned with the Paris Agreement but deeply rooted in Indian realities. In a world divided by climate finance promises and delivery gaps, India is showing what domestic leadership looks like.
By laying the groundwork for transparent, accountable, and ambitious climate-aligned investments, India is not only making a clear bid for global credibility—it is putting climate finance at the heart of nation-building.
This is what leadership for a Viksit Bharat looks like: bold, thoughtful, and grounded in both science and sovereignty.
This article first appeared in the Hindustan Times on 31 May 2025.
