The Ministry of Finance has released the Draft Climate Finance Taxonomy[1] which serves as a classification framework designed to guide investments toward climate-aligned activities. It supports the country’s long-term vision to achieve Net Zero emissions by 2070 and become a developed nation (Viksit Bharat) by 2047.
Purpose:
The taxonomy defines what qualifies as climate finance in the Indian context. It aims to:
- Mobilize capital for mitigation, adaptation, and transition-related activities
- Prevent greenwashing through clear criteria.
- Promote inclusive growth by enabling access for MSMEs
Structure and Approach
The taxonomy follows a phased, hybrid model: Phase I lays out guiding principles and identifies key sectors. Phase II will introduce technical screening criteria and measurable thresholds. It is designed as a living document that will evolve with changing technologies, regulations, and developmental needs.
Core Pillars
1. Mitigation – Reducing emissions and improving energy efficiency
2. Adaptation – Strengthening resilience in vulnerable sectors
3. Transition Support – Assisting high-emission sectors to adopt low-carbon technologies
Sectoral priorities
The initial focus of the draft taxonomy will be on the following sectors:
1. Power, mobility, and buildings (for both mitigation and adaptation)
2. Agriculture, food systems, and water – for climate adaptation
3. Hard-to-abate sectors – such as steel and cement, requiring transitional investment
Activity Classification
- Climate-Supportive Activities – Directly reduce emissions or improve resilience
- Transition Activities – Facilitate gradual decarbonization where immediate alternatives are unavailable
MSME Inclusion
The taxonomy includes simplified criteria and a staggered adoption model to support MSMEs, considering their limited capacity and resources.
Guiding Principles
The framework is guided by eight principles, including alignment with national climate goals, a “Do No Significant Harm” approach, promotion of indigenous technology, scientific credibility, and proportionality to ensure inclusive participation.
Conclusion
India’s Climate Finance Taxonomy is a strategic tool to enable sustainable, low-carbon growth, attract climate-aligned capital, and support a just and inclusive transition.
[1] ‘Draft Framework of India’s Climate Finance Taxonomy’, Government of India, Ministry of Finance Department of Economic Affairs <https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/may/doc202557551101.pdf>