India Strives Towards Climate Finance Taxonomy: Nirmala Sitharaman
Today, under the Union Budget 2024, Finance Minister Nirmala Sitharaman announced measures to enhance the availability of capital for climate adaptation and mitigation. In this direction, the central government would have a ‘climate finance taxonomy’ the finance minister said.
This initiative aims to help India while achieving its climate commitments and green transition from fossil fuels. India aims to reduce the emission intensity of its GDP by 45% by 2030 from its 2005 level. India has also shown commitment to achieving 50% of its electric power installed capacity from non-fossil fuel-based energy resources by 2030. It also aims to achieve a net-zero economy by 2070.
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The climate finance taxonomy classifies the parts of the economy that can be marketed as sustainable investments. This taxonomy and classification helps investors and banks to direct or allocate trillions of dollars towards investing in tackling climate change.
According to a report by the government of Canada, taxonomies are frequently used to set standards for climate-related financial instruments such as green bonds. But they are also beneficial in areas such as climate risk management, net-zero transition planning, and climate disclosure.
Climate finance taxonomy can play a pivotal role in ascertaining whether the economic activities are in line with the credible and science-based transition pathways. This will help in giving support to the deployment of climate capital and reduction in the risks of greenwashing.
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Several countries including South Africa, South Korea, Thailand, Singapore, Canada, Mexico and Columbia have already developed the climate finance taxonomy to direct the finances towards sustainable solutions. Many other countries are working towards getting this taxonomy for their economies. The European Union has also developed it as well.
