Govt brings draft framework of 'India's Climate Finance Taxonomy'

The finance ministry's draft taxonomy aims to guide climate-aligned investments across power, mobility, buildings, MSMEs and hard-to-abate sectors

The Department of Economic Affairs on Wednesday invited public comments on the draft framework of ‘India’s Climate Finance Taxonomy’, covering sectors including power, mobility, buildings, agriculture, and hard-to-abate sectors such as iron and steel, and cement, among others.

 

“The taxonomy will emphasise adaptation and building resilience to ensure that developmental gains are not adversely impacted,” the draft framework said.

 

Taxonomy for climate finance refers to a standardised system for classifying investments and activities based on their environmental impact, helping investors direct funds towards sustainable projects.

 

For MSMEs, the draft noted that the framework would follow a staggered approach, with simplified criteria and processes to reduce the burden of adoption—given their technological and resource constraints—while encouraging their participation in climate initiatives.

 

 

Climate finance taxonomies, or green taxonomies, provide detailed lists of economic activities and corresponding criteria for alignment with climate goals. They offer a structured approach to sustainable investments, promote informed decision-making, and help prevent greenwashing.

 

“India's climate finance taxonomy will facilitate greater resource flow to climate-friendly technologies and activities, enabling India to achieve the vision of being Net Zero by 2070 while ensuring long-term access to reliable and affordable energy,” a press statement by the finance ministry said.

 

The draft framework stated that the taxonomy should contribute to a reduction in carbon emission intensity or align with long-term low-carbon pathways, recognising that immediate compliance with stringent standards may not be feasible in the short run or across all sectors.

 

The proposed draft adopts a hybrid approach to address “India’s diverse industrial structure and respond to new targets, regulatory changes, and policy dynamics while promoting a science-based trajectory for climate transition.”

 

Finance Minister Nirmala Sitharaman, during her Budget 2025–26 speech, had announced, “We will develop a taxonomy for climate finance for enhancing the availability of capital for climate adaptation and mitigation. This will support achievement of the country’s climate commitments and green transition.”