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New Delhi: India will launch its own system this month to identify which investments qualify as climate finance, said two people familiar with the matter, providing vital clarity to mobilize capital for clean energy and net-zero goals.
The final climate finance taxonomy will identify the assets, activities, and projects needed to deliver a low-carbon economy consistent with the Paris Agreement goals of mitigation, adaptation, and financing commitments.
“The consultation process, with inputs from experts, academia, industry, global institutions, and government departments, is now complete. Comments were received by June-end,” the first of the two people cited above said, requesting anonymity. “The comprehensive taxonomy for climate finance is ready for launch in August.”
The Draft Framework of India’s Climate Finance Taxonomy was earlier released by the Department of Economic Affairs. The final version, shaped by extensive expert and public input, will pave the way for sector-specific guidelines and regular updates, positioning India to mobilise gobal and domestic finance for its ambitious climate and development goals.
A Ministry of Finance spokesperson didn’t respond to emailed queries.
India’s framework on climate finance taxonomy is designed to evolve in response to its needs and global best practices. In her budget speech in February 2024, Finance Minister Nirmala Sitharaman said India will develop a taxonomy for climate finance to enhance the availability of capital for climate adaptation and mitigation, which will support the achievement of the country’s climate commitments and green transition.
Major step
“It’s a major step toward building a credible, India-specific framework to channel climate finance towards clean energy, adaptation, and the decarbonisation of critical sectors,” the second person mentioned above said, also speaking on the condition of anonymity. “It will serve as a key tool to align investments with India’s Net Zero and energy security goals.”
That draft features a phased rollout, a hybrid classification model for both climate-supportive and transition-supportive investments, a strong focus on adaptation finance and micro, small and medium enterprises (MSME), robust guardrails against greenwashing, and firm alignment with national climate targets and indigenous innovation.
“The objective is to facilitate greater resource flow to climate-friendly technologies and activities, enabling achievement of the country’s vision to be Net Zero by 2070 while also ensuring long-term access to reliable and affordable energy,” said the draft.
The draft framework also aims to mobilise both public and private finance for climate mitigation, adaptation, and the decarbonisation of hard-to-abate sectors, in line with India’s development vision of Viksit Bharat 2047.
It also proposes a two-stage rollout, a foundational taxonomy defining principles and methods, followed by detailed sector-specific annexures.
Foundational framework first
“The first phase will establish the foundational framework and the approach. Following this, the second phase will involve the classification of activities, measures, and projects that are climate-supportive, along with those facilitating transition in specific sectors and industries,” the draft document said.
“This phased approach aims to enhance clarity and transparency for investors while ensuring that the taxonomy remains aligned with India’s developmental goals and climate commitments,” it added.
The draft framework classifies activities into three tiers: climate-supportive (tier 1 and 2) and climate transition-supportive, based on emission impact and technological feasibility.
Ajay Seth, secretary of the finance ministry’s department of economic affairs, who retired in June, had told Mint that efforts to develop a taxonomy for classifying climate finance will bring relevant and appropriate agendas to the forefront while presenting Indian standards globally.
Given India’s large population and lower per capita income, its climate finance needs differ from high-income nations, he said. The upcoming taxonomy would account for these differences by setting clear standards for both investment and usage, backed by robust disclosure and decision-making norms, he said.
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