Presenting the Union Budget for 2024-25 on Tuesday (July 23), Finance Minister Niramala Sitharaman announced that the government would develop a ‘climate finance taxonomy’ to enhance the availability of capital for climate adaptation and mitigation. This will help India achieve its climate commitments and green transition.
A climate finance taxonomy is a system that classifies which parts of the economy may be marketed as sustainable investments. It helps guide investors and banks in directing trillions toward impactful investments to tackle climate change.
“Taxonomies are frequently used to set standards for classifying climate-related financial instruments (e.g., green bonds), but, increasingly, they serve other use cases where the benchmarking feature is viewed as beneficial, including in the areas of climate risk management, net-zero transition planning, and climate disclosure,” according to a report by the government of Canada.
Why is a taxonomy significant?
With global temperatures soaring, and the adverse effects of climate change exacerbating, countries need to transition to a net-zero economy — the balance between the amount of greenhouse gas (GHG) that is produced, and the amount that is removed from the atmosphere.
Taxonomies can play a pivotal role in doing this as they can help ascertain if economic activities are aligned with credible, science-based transition pathways. They can also give impetus to deployment of climate capital, and reduce the risks of greenwashing.
Do other countries have taxonomies?
Yes. Many countries have either started to work on their taxonomy or finalised one. South Africa, Colombia, South Korea, Thailand, Singapore, Canada, and Mexico are some of the countries which have developed taxonomies. The European Union has done this as well.
What are India’s climate commitments?
India aims to achieve net-zero economy by 2070. It has also pledged to reduce the emissions intensity of its GDP by 45% by 2030, from the 2005 level. India has committed to achieve about 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 as well.
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First uploaded on: 23-07-2024 at 15:00 IST