The global temperature is rising, so the need to strengthen climate adaptation and mitigation strategies is taking center stage. The rising global temperature poses new challenges and demands higher investment to drive innovative solutions across the sectors.

To support this scenario, climate finance has also found due mention in the Union Budget 2024-25. Through this, India is developing a taxonomy framework to enhance the capital availability to support India’s green transition. It will also encourage India’s effort towards achieving its climate commitments and accelerate the efforts towards net-zero targets.

As per UNCTAD’s recent estimates, nearly US$ 4 trillion in climate finance is needed annually to support the global fight against climate change.  Institutional investors have a high interest in supporting green financing as capital availability will ensure significant market need-based sustainable solutions. It will align investments in diverse ways to attain viable and effective initiatives to fight back challenges associated with the climate change scenario.

The climate finance taxonomy framework will provide investment for scientifically driven opportunities, activities as well as assets to support low carbon energy transition for the country. The taxonomy can address the existing financial gap between carbon-intensive (brown) and low-carbon (green) verticals. A sustainable transition’s objective is to be comprehensive, ambitious, and overall, in sync with the Paris Agreement.

This transition phase globally encompasses all entities and their related activities including different fiscal products such as climate bonds. This will help investors, issuers, and governments to understand the indispensable investment opportunities present in one of the world’s fastest-growing economies.

The recent announcement of the Finance Minister of India about ‘Climate Finance Taxonomy’ is a step toward developing resources and projects that are synced with climate change objectives. It will bring notable initiatives and provisions to strengthen India’s climate efforts and develop faith in global investors.

Such a framework will optimize the use of green finance for capital creation that can produce green jobs to support sustainable development. Canada has also made provisions in climate taxonomy with a transition component. This segmentation recognizes sustainable solutions for quickly lowering the emission of carbon footprints in all major carbon-producing sectors and ensuring a clean energy transition globally.