Source:HINDU
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In May 2025 the Finance Ministry of India released the draft document titled Framework of India’s Climate Finance Taxonomy.
Announced during the Union Budget 2024-25 by Finance Minister Nirmala Sitharaman.
Objective: To mobilise and channel investments toward climate-aligned and sustainable development goals including India’s Net Zero target by 2070.
Classify economic activities as climate supportive or climate transition.
Facilitate green investments and prevent greenwashing.
Align with the vision of “Viksit Bharat @2047” and India’s climate commitments under the Paris Agreement.
Serve as a guiding tool for investors, banks and regulators to direct funds into sustainable sectors.
|
Feature |
Details |
|
Definition |
A system to identify economic activities that align with climate goals. |
|
Classification |
1. Climate Supportive Activities: Direct mitigation/adaptation impact. |
|
Sectors Covered |
Power, Buildings, Mobility, Agriculture, Food, Water Security. |
|
Focus Technologies |
Advanced Ultra Super Critical (AUSC) thermal power, low-emission cement/steel production, etc. |
|
Adaptation Financing Needs |
₹56.68 trillion (~USD 648.5 billion) till 2030 for agriculture, forestry, infrastructure, water, etc. |
Climate Supportive:
Solar, wind, and hydropower projects.
Green buildings with energy-efficient certifications.
R&D in low-carbon technologies.
Climate Transition:
Emissions intensity reduction in iron, steel and cement sectors.
AUSC thermal power plants improving efficiency from ~38% to 46%.
The taxonomy helps tackle the lack of consensus on what qualifies as climate finance.
COP29 (Baku, 2024)
Developed countries committed only $300 billion/year by 2035 against the requirement of $1.35 trillion.
India’s taxonomy can act as a benchmark for climate finance accountability.
|
Area |
Impact |
|
Investment Mobilization |
Provides clarity to investors and reduces risk of mislabeling. |
|
Energy Transition |
Aligns investment with India’s RE capacity target (777.14 GW by 2049) from current 470.4 GW. |
|
International Negotiations |
Strengthens India’s position in climate talks by standardizing climate finance terms. |
|
Development Link |
Balances sustainability with the developmental goals of a $5 trillion economy. |
Needs coordination between multiple ministries, financial institutions and industries.
In “hard to abate” sectors, technological innovation is still evolving.
Private Sector Participation must ensure incentives and regulatory certainty.
Finalize taxonomy with public and expert consultations.
Ensure interoperability with international taxonomies like EU or ASEAN.
Integrate taxonomy with SEBI’s ESG mandates and RBI’s climate risk framework.
Promote awareness among banks, investors, and state governments.
Sources:
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PRACTICE QUESTION Q. The introduction of a Climate Finance Taxonomy by the Government of India marks a strategic step toward achieving sustainable development and climate targets. Critically examine how such a taxonomy can balance India's developmental needs with its net-zero ambitions. 250 Words. |
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