Climate finance taxonomies and India's draft taxonomy

Every green label raises the same question: green according to whom? Without a common rulebook, each issuer, bank and fund can define "green" in its own way. That makes claims hard to compare and easy to stretch.

A climate finance taxonomy is a rulebook set by the government or a regulator. It lists economic activities and says which ones count as climate-friendly, often with numeric thresholds. For example, a taxonomy might say that a steel plant counts only if its emissions per tonne are below a set level.

Taxonomies help investors compare products, help regulators fight greenwashing and help direct money to the activities a country most needs. India announced plans for its own taxonomy in the Union Budget of July 2024 and released a draft framework in May 2025.

Common building blocks

• List of activities: grouped by sector, such as power, transport, buildings and industry.
• Screening criteria: thresholds or conditions an activity must meet.
• Do no significant harm (DNSH): an activity that helps one objective must not seriously damage another, such as water or biodiversity.
• Minimum safeguards: basic social and governance standards.

The EU Taxonomy

The EU Taxonomy Regulation of 2020 is the best-known example. It has six environmental objectives: climate change mitigation, climate change adaptation, water and marine resources, the circular economy, pollution prevention and control, and biodiversity and ecosystems. Activities must make a substantial contribution to at least one objective, do no significant harm to the others and meet minimum safeguards. Large EU companies report the share of their revenue, capex and opex that is taxonomy-aligned. Other markets, including China, the ASEAN countries, South Africa and Singapore, have built their own taxonomies.

India's draft framework (May 2025)

The Department of Economic Affairs in the Ministry of Finance released the draft framework on 7 May 2025 and invited comments until 25 June 2025.

Objectives

• Direct more money to climate-friendly activities that support net zero by 2070 and the Viksit Bharat goal for 2047, while keeping energy reliable and affordable.
• Cover mitigation, adaptation and the transition of hard-to-abate sectors.
• Guard against greenwashing.

The ministry estimates that India's 2030 climate goals need about $2.5 trillion of investment.

Eight core principles

1. Consistency with India's climate action and development priorities
2. Do no significant harm to other climate objectives
3. A focus on pathways suited to India's context
4. Interoperability with international frameworks, with flexibility for national conditions
5. Support for transition activities
6. Promotion of indigenous technologies
7. Science-based and transparent methods
8. Proportionality, with specific support for MSMEs

Categories

• Climate supportive, Tier 1: activities that avoid emissions, cut emissions intensity beyond a set level along a defined path, or build resilience.
• Climate supportive, Tier 2: activities that cut emissions intensity where full avoidance is not yet possible, or adaptation activities that still cause some emissions because of technology limits.
• Transition supportive: activities where India has no technically and economically feasible low-emission alternative yet. They must not create stranded assets and must match government policy.

First sectors

• Power, mobility and buildings, for mitigation with adaptation co-benefits.
• Agriculture, food and water security, for adaptation and resilience.
• Hard-to-abate industry, starting with iron and steel and cement. Fertilisers and aluminium are expected in later reviews.

Structure

The taxonomy has two parts: the framework and sector annexures. Sectoral technical committees will prepare the annexures with the detailed activities and thresholds. The Department of Economic Affairs will release the final framework, and the taxonomy will be reviewed from time to time.

Status in 2026

An article in The Week in January 2026 still described the framework as a draft, with sector annexures yet to come. A Climate Policy Initiative report in October 2026 described India's taxonomy as still under development. Check the Department of Economic Affairs website for the latest version before relying on it.

Interim lists in use

Until the taxonomy is final, Indian labelled finance relies on other lists:

• RBI green deposits: nine eligible categories plus a list of exclusions, in the November 2025 Directions.
• Sovereign Green Bond Framework: the same nine categories, with exclusions such as fossil fuels, nuclear energy and direct waste incineration.
• SEBI green debt securities: the definition in SEBI's regulations, with blue, yellow and transition sub-categories.