India is poised to implement a climate finance taxonomy, as announced by the Minister of Finance, Nirmala Sitharaman, during the annual budget.
According to Environmental Finance, this initiative seeks to attract significant investment into climate-related adaptation and mitigation projects, aligning closely with the nation’s ambitious climate commitments and its green transition strategy.
The newly proposed taxonomy is not just a framework but a strategic tool designed to guide ‘hard to abate’ industries away from merely meeting energy efficiency targets towards achieving stringent emission goals. This shift is critical for India, the world’s third-largest emitter of carbon, and will be linked to the development of a national carbon market.
Drawing inspiration from similar frameworks in the EU and China, India’s approach has been in the pipeline since 2020, initiated by the Ministry of Finance along with significant contributions from various other governmental and financial bodies. The Sustainable Finance Taskforce, which includes representatives from the Securities Exchange Board of India (SEBI), the Reserve Bank of India, and the Ministry of Environment, Forest and Climate Change, plays a crucial role in this development. A specific subgroup dedicated to this taxonomy is co-chaired by the NITI Aayog and the Ministry of Environment, Forest, and Climate Change, with logistical support from the UN Development Programme.
The proposed taxonomy aims to resonate with global standards while being tailored to suit the Indian context. This suggests an inclusion of potentially pioneering technologies and practices that may not yet be recognized as sustainable in other jurisdictions.
Additionally, the taxonomy’s integration with existing regulatory frameworks like the BRSR disclosure requirements indicates a comprehensive approach to sustainable finance. The SEBI has already laid down regulations for ESG ratings and disclosures, which will likely be harmonized with this new taxonomy.
Nirmala Sitharaman remarked, “The taxonomy will support achievement of the country’s climate commitments and green transition.” Her statement underscores the critical nature of this development and its expected impact on the financial and environmental landscape of India.
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