Subscribe
As India prepares its climate finance roadmap ahead of COP30, a new report by the Centre for Social and Economic Progress (CSEP) has urged the government to ensure its proposed Climate Finance Taxonomy Framework becomes a “practical, inclusive, and dynamic policy tool”, rather than a rigid compliance exercise.
The report, Global Climate Finance Taxonomy: Lessons for India, authored by Renu Kohli and Kritima Bhapta, argues that India’s draft taxonomy could be pivotal in unlocking climate-aligned investments, but only if it avoids the pitfalls seen in global frameworks.
By analysing models from the EU, ASEAN, China, South Africa, Indonesia, and Singapore, the report identifies common shortcomings India must steer clear of: technical complexity, inconsistent data standards, weak interoperability, limited adaptation focus, and transition-washing risks that can distort genuine green investment flows.
“Taxonomies are meant to guide, not constrain,” said Renu Kohli, senior fellow at CSEP. “India must strike a pragmatic balance between global credibility and domestic relevance. If the framework becomes overly complex or detached from local realities, it could end up excluding the very sectors and enterprises it aims to mobilise.”
At a time when India faces a widening climate finance gap—estimated at over $170 billion annually by 2030—the taxonomy is expected to serve as a unifying classification tool for investors, banks, and regulators to identify sustainable activities. However, the CSEP report cautions that without strong coordination between institutions such as the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and the Ministry of Finance, the framework risks “sending mixed signals” to markets.
The report recommends aligning the taxonomy closely with existing domestic frameworks, particularly RBI’s green finance guidelines and SEBI’s Business Responsibility and Sustainability Reporting (BRSR+) framework, to ensure consistency and avoid duplication.
In a significant step, the report also provides a detailed mapping of India’s economic activities using the National Industrial Classification (NIC) system—a first attempt to translate the government’s draft taxonomy sectors into measurable categories for mitigation and adaptation.
“Our mapping offers a practical starting point for defining which economic activities qualify as climate-aligned,” said Kritima Bhapta, co-author of the report. “But for the taxonomy to be effective, it must also include activities beyond large industries. India’s millions of MSMEs, informal businesses, and innovators must be able to participate in the green transition.”
The report highlights that micro, small, and medium enterprises (MSMEs)—which account for nearly 30 per cent of India’s GDP—are often left out of climate finance flows because of capacity constraints and rigid eligibility criteria. Drawing lessons from Indonesia and the Philippines, the report suggests adopting simplified, proportionate models that can help MSMEs access green credit without complex reporting burdens.
Another key recommendation focuses on adaptation finance, which the authors describe as the “missing pillar” in global taxonomies. While mitigation activities like renewable energy or electric mobility are easier to quantify, adaptation projects—such as resilient agriculture, coastal protection, or urban water systems—remain under-defined.
“Adaptation is far harder to capture, yet it’s central to India’s climate resilience,” Bhapta added. “The taxonomy must move beyond carbon metrics and recognise activities that enhance community and ecosystem resilience, especially in vulnerable regions.”
The report also cautions against the temptation to chase “technological neutrality” at the expense of indigenous innovation. It urges policymakers to encourage Indian-developed climate technologies while ensuring global interoperability for foreign investors.
“India’s taxonomy should not simply mirror global systems,” Kohli said. “It must speak the language of Indian development priorities—job creation, inclusion, and resilience—while remaining credible to international capital markets.”
The report emphasises that successful taxonomies are those that evolve. “A static rulebook cannot keep up with changing science, technology, or markets,” Kohli added. “India’s version must be a living instrument, reviewed and updated regularly to maintain relevance.”
As the government prepares to finalise the taxonomy in time for COP30, the CSEP report concludes that policy clarity, institutional coordination, and market practicality will determine whether it becomes a transformative enabler—or another well-intentioned framework that remains underused.
“Ultimately,” said Bhapta, “a taxonomy is not about labels—it’s about direction. If it helps channel finance towards India’s real climate priorities, it will have served its purpose.”