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A green finance taxonomy defines which economic activities qualify as environmentally sustainable. Creating a common language for policymakers, financial institutions and businesses can strengthen investor confidence, reduce the risk of greenwashing and direct capital towards climate and development priorities.
But clear definitions are only the starting point. A taxonomy needs institutions that can apply its criteria consistently, reliable evidence to demonstrate alignment, and financing mechanisms that turn aligned activities into investment.
Grant Thornton Bharat's report, "Green Finance Taxonomy: Building credible green taxonomies to unlock sustainable finance", examines this journey. Drawing on international approaches, it explains how policymakers, regulators and market participants can develop credible, sustainable finance frameworks, prepare institutions for implementation and connect taxonomy alignment with financing that supports measurable environmental outcomes.
A green finance taxonomy is credible only if it uses science-based technical screening criteria (TSC). These criteria convert environmental objectives into measurable requirements, including emissions-intensity limits, energy-efficiency improvements, and technology-specific benchmarks. Thresholds should be set using transparent methods and strong evidence. When local conditions require alternative approaches, provide a clear technical justification.
Two safeguards are also essential. The Do No Significant Harm (DNSH) principle requires activities contributing to one environmental objective to avoid significant harm to other environmental objectives. Minimum social safeguards protect labour rights, human rights, and the rights of affected communities. Together, these measures prevent a narrow focus on environmental benefits from overlooking broader social and environmental impacts.
National green finance taxonomies need to reflect a country's economic conditions. International investors also need to understand and use them. Alignment with regional and global sustainable finance frameworks can make investments easier to compare across countries and less costly to assess.
For these frameworks to work together, countries need to:
Compare environmental objectives, sector coverage, activity classifications and technical screening criteria.
Explain where the frameworks differ.
Adapt requirements to available data, technologies and national transition needs without weakening environmental standards.
Regulators, environmental authorities, technical experts, financial institutions, industry and civil society all have a role in developing and reviewing the framework. Clear responsibilities, consultation and regular updates help keep it useful as science, technology and market conditions change.
While publishing a green finance taxonomy starts the implementation process, institutions will still need guidance, skills, data and systems to apply it consistently.
A critical distinction is the difference between taxonomy eligibility and taxonomy alignment. An eligible activity falls within the taxonomy's coverage. An aligned activity meets the applicable technical screening criteria and safeguards. Confusing the two can overstate environmental performance and weaken confidence in financial products.
Regulators need the capability to set expectations, assess compliance, and resolve questions of interpretation. Banks and investors need teams that can evaluate activities, assess environmental evidence, track the use of proceeds and incorporate findings into product and portfolio decisions. Corporations need to provide the activity-level information on which these assessments depend.
Climate disclosure frameworks can provide a useful baseline, but taxonomy assessment often requires more detailed technical information. Emissions intensity, water use, biodiversity impacts and evidence of safeguards may need to be collected at the activity or project level.
Institutions need practical support to apply the taxonomy: screening tools, sector-specific guides, standard reporting templates and access to verification services. Training should help staff understand the requirements and apply them confidently, with trainers who can share that knowledge across their organisations.
Develop sector-specific technical guidance and reporting templates, and launch training-of-trainers programmes.
Introduce screening tools, train practitioners, and run supervised pilots with financial institutions. Use the findings to refine guidance.
Introduce mandatory taxonomy disclosures and embed assessment in supervisory frameworks and investment mandates.
Disclosure helps investors understand environmental performance, but that is not enough to attract funding for the green transition. A green investment framework should bring taxonomy criteria into financial products, lending policies, investment mandates and public procurement.
Several forms of support can help turn aligned projects into investment opportunities:
Tax benefits, targeted subsidies and concessional finance can make projects more affordable and financially viable.
Guarantees and blended finance can reduce risks that might otherwise deter private investors.
Technical assistance can help organisations prepare projects and secure financing.
Public procurement can create demand too. Applying taxonomy criteria to purchases of buildings, infrastructure and materials can encourage investment in greener goods and services. These incentives should be tied to verified results. Taxonomy alignment should also be considered alongside credit assessments and climate risk analysis. Meeting environmental criteria does not, by itself, mean a project is financially viable.
High-emitting sectors need funding to cut emissions, even if they do not yet meet the green finance taxonomy's thresholds. Clear transition categories can help them access this funding while maintaining the framework's environmental standards.
For high-emitting sectors such as steel, cement and chemicals, transition categories should require defined technical thresholds, time-bound decarbonisation milestones, environmental safeguards and credible verification. Regular reviews and clear sunset provisions should establish when activities must meet stricter standards or lose eligibility.
Funding should support a credible plan to reduce emissions. It should also account for workers and communities whose jobs and livelihoods may be affected as industries change.
Success should be measured by both the capital mobilised and the environmental outcomes achieved. Monitoring should track taxonomy-aligned financial flows, the allocation of funds and relevant outcomes such as emissions reductions, energy savings or improvements in water use.
Independent checks help build trust in these results. Regular reviews can reveal gaps in how the taxonomy is applied and where its criteria need updating. Together, they strengthen accountability and keep the framework relevant as conditions change.
We support policymakers, regulators and financial institutions across taxonomy development and implementation activities. Our services include needs assessments, governance frameworks, international alignment assessments, pilot testing, market studies and capacity building.
We also develop technical guidance, screening tools and green finance frameworks, and support portfolio alignment assessments, data analysis and taxonomy reporting. This helps institutions connect credible classification with practical financing decisions.
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