Context:

• In May 2025, the Ministry of Finance released India’s draft Climate Finance Taxonomy for consultation.
• The taxonomy aims to channel climate-aligned investments, reduce greenwashing, and guide investors on which sectors and technologies support mitigation, adaptation, or transition.
• It positions itself as a “living” framework, meant to evolve with India’s shifting priorities and global obligations.
• However, its effectiveness as a governance tool will depend on how well this adaptability is translated into practice.
• In this context, this article explores the need for a review architecture, the substantive aspects of ensuring legal and content clarity and an institutional mechanisms for accountability.

Review Architecture for India’s Climate Finance Taxonomy

• A structured review system is essential for India’s climate finance taxonomy to ensure investor confidence, legal clarity, and global alignment.
• Drawing inspiration from the Paris Agreement’s Article 6.4 Supervisory Body, the framework should function on two levels.
  • Annual Reviews
    • These would address short-term implementation gaps, evolving obligations, policy changes, and stakeholder feedback.
    • They must follow a predictable process with fixed timelines, documentation standards, and mandatory public consultations.
  • Five-Year Reviews
    • A deeper reassessment every five years would evaluate the taxonomy against global carbon market trends, evolving definitions of climate finance, and India’s sectoral transitions.
    • This aligns with India’s Nationally Determined Contributions (NDC) cycle and the global stocktake under the UNFCCC.
• Together, these periodic and recurring reviews would make the taxonomy both responsive in the short term and resilient in the long run.

Substantive Aspects of Reviewing India’s Climate Taxonomy

• A meaningful review of India’s climate finance taxonomy must focus on legal coherence and substantive clarity.
• Legal Coherence
  • The review should ensure alignment with Indian laws like the Energy Conservation Act, SEBI regulations, and the Carbon Credit Trading Scheme, while harmonising with international obligations.
  • It must address enforceability, remove redundancies, clarify overlaps, and synchronise with related fiscal tools such as green bonds, blended finance, and risk disclosures.
• Content Clarity
  • The taxonomy should remain clear, readable, and technically accurate.
  • Definitions must evolve with market standards and be accessible to both experts and non-experts.
  • Quantitative thresholds like emission reduction targets or efficiency benchmarks should be updated using data and stakeholder feedback.
• The review should also focus on inclusivity by ensuring accessibility for MSMEs, the informal sector, and vulnerable communities, with simplified entry points, phased compliance, and realistic expectations — particularly in agriculture and small manufacturing — to support India’s net-zero pathway.

Institutionalising Accountability in India’s Climate Taxonomy

• To ensure effective and transparent reviews, the Ministry of Finance should establish a dedicated unit within the Department of Economic Affairs.
• Public dashboards can be introduced to collect inputs, record implementation challenges, and publish review reports, ensuring both predictability and transparency.
• Annual summaries and five-year revision proposals should be made public in a consolidated format to enhance investor confidence and accessibility.
• This will also enable better alignment with parallel frameworks like India’s carbon market, green bond mechanisms, and disclosure obligations.

Conclusion

• The taxonomy rollout coincides with key shifts in India’s climate finance ecosystem.
• This includes - the operationalisation of the Carbon Credit Trading Scheme, mainstreaming of green bonds, and rising demand to align public investments with long-term climate goals.
• A weak or opaque taxonomy risks undermining these developments.
• Ultimately, the taxonomy must function as a true “living document” — kept relevant through active review, transparent revision, and structured engagement — if it is to succeed as a credible governance tool for India’s climate finance future.