India’s Climate Finance Taxonomy: Building a Living Framework

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The Ministry of Finance released India’s draft Climate Finance Taxonomy for public consultation in May 2025 to guide green investments and prevent greenwashing.

Designing a Review Architecture

Two-Level Review Mechanism: The taxonomy should adopt both annual reviews for short-term corrections and five-year comprehensive reviews aligned with India’s NDC updates and the global stocktake.
Annual Review Triggers: Yearly reviews must address implementation gaps, evolving obligations, stakeholder inputs, and policy shifts through structured timelines and mandatory public consultations.
Five-Year Comprehensive Cycle: Deeper reviews every five years should assess changes in carbon markets, international standards, and domestic sectoral transitions for long-term resilience.

Legal and Substantive Review Parameters

Legal Coherence: Reviews must align the taxonomy with existing Indian laws (Energy Conservation Act, SEBI norms, Carbon Credit Trading Scheme) and harmonise overlaps with fiscal measures such as green bonds and blended finance.
Content Clarity: Editorial review should ensure precise, accessible definitions reflecting evolving market standards, updated emission benchmarks, and readability for experts and non-experts alike.
Inclusion of Marginalised Sectors: The taxonomy should remain accessible for MSMEs, informal sectors, and vulnerable communities through staggered compliance, simplified entry, and proportionate obligations.

Institutionalising Accountability

Dedicated Review Body: The Ministry of Finance should establish a standing unit or expert committee involving regulators, climate scientists, legal experts, and civil society for structured reviews.
Transparency through Public Dashboards: A digital platform must collect feedback, publish implementation reports, and consolidate annual review summaries and five-year proposals for investor confidence.
Integration with Climate Finance Ecosystem: Alignment with India’s carbon market, disclosure frameworks, and green bonds is essential to avoid duplication and strengthen trust in climate finance instruments.

Practice Question

“Critically examine the role of India’s proposed Climate Finance Taxonomy in mobilising green investments. How can review mechanisms, legal coherence, and institutional accountability ensure its credibility as a ‘living framework’?” (250 words)

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