Context:
Presenting the Union Budget for 2024-25, Finance Minister announced that the government would develop ‘climate finance taxonomy’.
Relevance:
GS III: Environment and Ecology
Climate Finance Taxonomy
Definition and Purpose:
- System: A classification framework used to identify and categorize which parts of the economy can be marketed as sustainable investments.
- Objective: To guide investors and financial institutions in directing capital towards impactful investments aimed at addressing climate change.
- Applications:
- Climate-related Financial Instruments: Used to classify and standardize instruments like green bonds.
- Climate Risk Management: Helps in assessing and managing risks associated with climate change.
- Net-Zero Transition Planning: Assists in planning and implementing strategies for achieving net-zero greenhouse gas emissions.
- Climate Disclosure: Supports transparent reporting and disclosure related to climate impacts and sustainability.
Global Examples:
- Countries with Developed Taxonomies: South Africa, Colombia, South Korea, Thailand, Singapore, Canada, Mexico.
- European Union: Has also developed its own taxonomy for sustainable investments.
Significance:
- Climate Change Mitigation: Helps countries transition to a net-zero economy by aligning economic activities with science-based transition pathways.
- Capital Deployment: Promotes the allocation of capital towards climate adaptation and mitigation projects.
- Reducing Greenwashing: Helps in mitigating the risks of greenwashing by setting clear standards for what constitutes a sustainable investment.
- Enhancing Investment: Increases the availability of capital for climate-related projects, aiding countries like India in meeting their climate commitments and facilitating a green transition.
Implications for India:
- Achieving Climate Commitments: Supports India’s goals for reducing greenhouse gas emissions and advancing its green transition.
- Investment Facilitation: Ensures that investments are directed towards projects with genuine environmental benefits, enhancing the effectiveness of climate finance.
-Source: Indian Express
