India’s Ministry of Finance has introduced a draft framework for its Climate Finance Taxonomy, aiming to mobilize up to $2.5 trillion in investments by 2030 for climate-aligned sectors. The framework, which will be open for public and expert comments until June 25, 2025, seeks to accelerate capital flow toward sectors that align with the country’s net-zero ambitions.
Finance Minister Nirmala Sitharaman announced the initiative in the Union Budget for 2024–25, emphasizing the need for a taxonomy that enhances the availability of capital for both climate adaptation and mitigation efforts. “We will develop a taxonomy for climate finance to enhance the availability of capital for climate adaptation and mitigation,” she said, highlighting India’s commitment to tackling climate change through structured financial support.
The taxonomy will serve as a classification tool to define sustainable economic activities, focusing on critical sectors such as power, mobility, agriculture, and water security. It also targets hard-to-abate industries like steel and cement, aiming to guide investments into sectors where decarbonization challenges are most significant. By doing so, the framework supports India’s ambitious climate goals, including achieving net-zero emissions by 2070, reducing emissions intensity by 45% by 2030, and sourcing 50% of its electricity from non-fossil sources by 2030.
The taxonomy classifies activities into two main categories:
- Climate-supportive: Activities that directly reduce emissions, adapt to climate impacts, or conduct R&D for these objectives.
- Transition-supportive: Projects focused on improving energy efficiency or reducing emissions in sectors that are difficult to fully decarbonize.
At launch, the framework will prioritize sectors such as iron, steel, cement, power, mobility, buildings, and resilience-focused areas like agriculture and food security.
This move aligns India with global efforts to establish green taxonomies, similar to frameworks already in place in the EU, UK, Singapore, Hong Kong, Canada, and Australia. These global parallels are designed to boost investor confidence, attract international capital, and prevent the risks of greenwashing in the growing sustainable finance space.
India’s Climate Finance Taxonomy is set to play a pivotal role in ensuring the country’s transition to a low-carbon economy, providing the necessary infrastructure for green investment flows and contributing to the achievement of its long-term sustainability goals.
