Seven lessons for India’s climate finance taxonomy

Response to the Department of Economics Affairs’ Public Consultation on the Draft Framework for India’s Climate Finance Taxonomy

In May 2025, the Department of Economic Affairs (DEA) within India’s Ministry of Finance released a first draft framework of India’s Climate Finance Taxonomy for public consultation. The taxonomy aims to facilitate around US$250 billion per year (Ministry of Finance, 2025) of finance towards climate-friendly technologies and activities and thereby enable India to achieve its interim 2030 and long-term 2070 net zero targets.

The draft framework already integrates many positive and encouraging priorities that will ensure that the development of the Climate Finance Taxonomy follows international best practice. Building on this positive momentum, this report aims to inform and guide the DEA’s further development of the Climate Finance Taxonomy by highlighting international best practice. (A version of the report was submitted to the DEA’s Public Consultation on the Draft Framework for India’s Climate Finance Taxonomy in July 2025.) Taking these lessons into consideration can help India to avoid common mistakes, support the DEA in deciding what to include and exclude in the taxonomy, and ultimately smooth the transition towards a low-carbon and climate-resilient economy and financial system. The inclusion of real-world examples strengthens the lessons, helps make them more practical, and facilitates peer-learning.

The authors identify seven common areas of lessons and challenges across those countries that have already implemented similar taxonomies:

• Lesson 1: Making adaptation and resilience a central objective of the taxonomy by refining the classification of eligible activities, integrating Nature-based Solutions (NbS) and introducing simplified Technical Screening Criteria (TSC). This lesson draws on experience from the treatment of adaptation and resilience under the taxonomies of Mexico, Indonesia, Australia and the European Union (EU).

• Lesson 2: Including the domestic mining and refining of critical minerals in the taxonomy to support India’s own low-carbon economic and industrial ambitions and reduce its exposure to global price spikes and supply bottlenecks. The DEA can draw on the experience of Brazil, Chile and Australia to integrate extractive industries into the taxonomy while ensuring high-environmental standards.

• Lesson 3: Ensuring credibility and interoperability of India’s climate finance taxonomy by aligning it with global standards through clearer classification of activities, internationally-benchmarked screening criteria and compatibility with the Multi-Jurisdiction Common Ground Taxonomy (M-CGT) between China, the EU and Singapore.

• Lesson 4: Adopting a tiered and dynamic regulatory design by streamlining and clarifying the distinction between the green and transitional tiers of the taxonomy, setting evidence-based thresholds for emissions and adaptation, and ensuring that these thresholds are regularly updated to accommodate technological progress in low-carbon solutions. Singapore, Indonesia and Australia offer important lessons on how to structure tiered and dynamic taxonomies.

• Lesson 5: Minimising social risks by embedding the World Bank’s just transition principles to align India’s net zero goals with the realities of coal dependence. Drawing on Indonesia and South Africa’s experience, the taxonomy should recognise investments in reskilling, land repurposing and rehabilitation as eligible activities.

• Lesson 6: Strengthening inclusive agriculture by adopting a phased, principles-based approach for classifying eligible activities that cater to the needs and circumstances of smallholder farmers. Drawing on practices in Mexico, the Philippines and Australia to strengthen farmer engagement, improve data systems and invest in their capacity.

• Lesson 7: Avoiding fragmentation and concentration by aligning the taxonomy with existing regulatory frameworks for sustainable finance from the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI), and ensuring that it can be applied to a diverse range of financial instruments other than loans.