Making India's climate taxonomy framework work

The Hindu

a day ago

In May this year, the Ministry of Finance released India's draft Climate Finance Taxonomy for public consultation. As a foundational tool, the taxonomy aims to mobilise climate-aligned investments, prevent greenwashing, and clarify for investors which sectors, technologies and practices contribute to mitigation, adaptation, or transition. Importantly, the document calls itself a 'living' framework, adaptable to India's evolving priorities and international obligations. However, its success as a credible governance tool will depend on how it operationalises this principle.
The review architecture
Herein is a proposed review mechanism that is structured for the taxonomy, drawing from the recent regulatory innovations under the Paris Agreement's Article 6.4 Mechanism. The Article 6.4 Supervisory Body has adopted a legal and editorial review system for climate market instruments. These principles offer a useful reference for India's taxonomy to ensure investor confidence, legal clarity, and domestic-international alignment.
The review system for the climate finance taxonomy should function on two complementary levels. First, there must be a periodic review mechanism that allows for timely course correction.
These reviews should be annual and triggered by implementation gaps, evolving international obligations, stakeholder feedback, or policy changes. To be effective, they must follow a structured and predictable process, with fixed timelines, clear documentation protocols, and mandatory public consultation.
Alongside this, a recurring review should be institutionalised every five years. This deeper, more comprehensive, process would reassess the taxonomy in light of emerging trends in carbon markets, shifts in global climate finance definitions, and lessons learned from sectoral transitions. A five-year cycle corresponds with India's updated Nationally Determined Contributions timeline and the global stocktake process under the United Nations Framework Convention on Climate Change. Together, these two levels of review would ensure that the taxonomy remains both responsive in the short term and resilient in the long term.
The substantive aspect of the review
Two key aspects must form the basis of any meaningful review: legal coherence and substantive content clarity. The legal assessment should examine the taxonomy's alignment with India's laws: Energy Conservation Act, SEBI norms, Carbon Credit Trading Scheme, and international obligations. The review should ensure enforceability, remove redundancies, clarify overlaps and harmonise terms. In addition, the review must identify interdependencies between climate finance mandates and other economic or fiscal measures such as green bonds, blended finance schemes, or environmental risk disclosures, so that revisional inconsistencies are avoided.
The substantive editorial review must ensure that the taxonomy remains readable, coherent and technically precise. Definitions must reflect evolving market standards and be usable by both experts and non-experts.
Where quantitative thresholds exist, for instance, greenhouse gas emissions reduction targets or energy efficiency benchmarks, these must be updated with empirical data and stakeholder input.
These reviews should ensure the taxonomy remains accessible for micro, small and medium enterprises, the informal sector, and vulnerable communities, crucial for net-zero goals, but which face barriers. It should provide simplified entry points, staggered compliance timelines, and proportionate expectations, especially in agriculture and small manufacturing.
Institutionalising accountability
To support such a review structure, the Ministry of Finance should establish a standing unit within the Department of Economic Affairs or an expert committee composed of stakeholders from financial regulators, climate science institutions, legal experts and civil society. Public dashboards can be developed to receive inputs, document implementation experiences and publish review reports. These measures will ensure the taxonomy evolves predictably and transparently
Annual review summaries and five-year revision proposals must be made available to the public, ideally in a consolidated format, to improve investor confidence and ease of access. This will also enable better coordination with parallel instruments such as India's carbon market mechanisms, disclosure obligations and green bond frameworks.
The taxonomy's rollout coincides with critical developments in India's climate finance ecosystem. The Carbon Credit Trading Scheme is expected to be fully operationalised, green bonds are entering mainstream portfolios, including on the stock market, and the pressure to align public investment flows with long-term climate goals is rising. A weak or opaque taxonomy will undercut these efforts. A 'living document' is only as effective as the process that keeps it alive through active review, transparent revision, and structured engagement. It is hoped that such consideration will form a part of the final climate taxonomy framework.
Shashank Pandey is a lawyer and a former Research Fellow at the Vidhi Centre for Legal Policy