In a bid to channel investment into clean energy projects and infrastructure resilient to climate change, India’s Ministry of Finance has released a draft framework titled ‘Framework of India’s Climate Finance Taxonomy’. The document sets out a classification system designed to identify economic activities aligned with the country’s climate goals and long-term development pathway.
The proposed taxonomy is intended to promote investment in technologies and practices that support India’s ambition to achieve net zero emissions by 2070, while ensuring continued access to affordable and reliable energy. It also aims to curb greenwashing and reinforce India’s broader developmental vision of becoming a developed nation—Viksit Bharat—by 2047.
The draft follows Finance Minister Nirmala Sitharaman’s announcement during the Union Budget earlier this year and builds upon consultations with climate experts. “A climate finance taxonomy is a system that classifies which parts of the economy may be marketed as sustainable investments,” explained Rajasree Ray, Advisor at the Ministry of Environment, during a workshop in January. “It helps guide investors and banks in directing trillions toward impactful investments to tackle climate change.”
The taxonomy is also expected to strengthen India’s position in international climate negotiations, such as the UN Climate Change Conferences, where disputes over the definition of climate finance have been a longstanding hurdle. Developing countries, including India, have repeatedly called for subsidised technology transfers and grants, while developed countries often count commercial investments in renewables under their climate finance commitments. At the most recent conference in Baku, Azerbaijan, developed nations pledged only $300 billion annually by 2035, against an estimated requirement of $1.35 trillion—highlighting the need for clarity in defining eligible climate finance.
India’s draft taxonomy divides climate-friendly activities into two broad categories: climate supportive and climate transition. The former encompasses initiatives aimed at reducing absolute greenhouse gas emissions, lowering emissions intensity, implementing climate adaptation solutions, and supporting relevant research and development. Climate transition activities, meanwhile, include efforts to cut emissions intensity in hard-to-abate sectors such as steel, cement, and iron, where absolute reductions are technologically challenging.
Key sectors covered under the taxonomy include energy, buildings, transport, agriculture, food systems, and water security. To meet rising demand and climate targets, India must significantly scale up investments, with estimates suggesting the need to increase installed power capacity from 470.4 GW (as of February 2025) to 777.14 GW by the 2029–2049 period. This includes strategic investment in technologies such as Advanced Ultra Super Critical (AUSC) thermal power plants, which can achieve efficiency rates of 46 per cent—higher than current subcritical and supercritical technologies.
India’s Initial Adaptation Communication to the United Nations in December 2023 estimated that the country requires ₹56.68 trillion (approximately USD 648.5 billion) by 2030 to fund adaptation measures across agriculture, water, ecosystems, fisheries, and infrastructure.
The public consultation on the taxonomy is expected to shape India’s policy and regulatory environment around sustainable finance and bolster its credibility in both domestic and international green investment landscapes.
