FinMin to develop climate finance taxonomy in 6-10 months: DEA secy

The taxonomy for climate finance will be developed in 6 to 10 months, said Ajay Seth, secretary, Department of Economic Affairs.

Speaking at the CII Financial Summit 3.0 in Mumbai, Seth said, “The Finance Minister announced to come out with a taxonomy for climate finance. It is one thing we have started with and we would love to partner with all of you under the aegis of CII on how to put the taxonomy structure together. It will take about 8 to 10 months or maybe about 6 to 8 months, but that is an exercise we have started and we have to work collaboratively.”

Climate finance taxonomy is a set of guidelines that will help investors and institutions direct funds towards investments that will aid in tackling climate change.

During the Union Budget 2024-25, Finance Minister Nirmala Sitharaman had announced that the government would be developing a “climate finance taxonomy” to increase the availability of capital for the purpose of climate adaptation and mitigation.

Further, speaking about measures required to strengthen financial inclusion in the country, Seth spoke about the need to widen the corporate bond market, develop secondary markets, and the work needed in credit rating.

“Much work needs to be done in credit rating and developing the secondary market and in that regard the bill for National Financial Reformation Registry is almost complete after extensive consultation and we expect that the early set-up of the registry will help in bridging or filling critical gaps in the credit rating mechanism.”

He said that the market capitalisation in India is 140 per cent of GDP, and added that out of the total capital raised last year, only 0.2 per cent is fresh or productive capital, the remaining being through the sale of stake by promoters, and therefore the need to reimagine the financial sector.

Similarly, in the case of Rs 9 lakh crore raised through debt market issuances, 98 per cent has been through private placement and over 88 per cent has been “AAA” rated issuances, implying the need for deepening and widening of the bond market as a vast segment of the economy is unable to tap into the bond market.