Climate Finance Taxonomy
Description
Climate Finance Taxonomy
Description:
What is a climate finance taxonomy?
A
climate finance taxonomy is a classification system that identifies which
economic activities can be marketed as sustainable investments. It guides
investors and banks in channeling significant funds toward impactful
investments that address climate change.
According
to a report by the Government of Canada, "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."
Why is a taxonomy significant?
With
rising global temperatures and worsening effects of climate change,
transitioning to a net-zero economy is crucial. Taxonomies are pivotal in this
process as they help determine if economic activities align with credible,
science-based transition pathways. They also drive the deployment of climate
capital and reduce greenwashing risks.
In
India, a taxonomy could attract more international climate funds. Currently,
green finance flows in India are inadequate, accounting for only about 3% of
total FDI inflows, according to the Landscape of Green Finance in India 2022
report by Climate Policy Initiative. A key reason for the low green finance
flow is the lack of clarity on what constitutes sustainable activity. A
taxonomy would address this issue.
What is the potential for green investments in
India?
India
has a climate-smart investment potential of $3.1 trillion from 2018 to 2030,
according to the International Finance Corporation (IFC). The electric vehicle
segment presents the largest investment opportunity at $667 billion, as India
aims to electrify all new vehicles by 2030. Additionally, the renewable energy
sector remains a significant investment avenue at $403.7 billion.
Do other countries have taxonomies?
Yes,
many countries have developed or are working on their taxonomies. These include
South Africa, Colombia, South Korea, Thailand, Singapore, Canada, Mexico, and
the European Union.
What are India’s climate commitments?
A:
India aims to achieve a 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.
Furthermore, India is committed to achieving about 50% cumulative electric
power installed capacity from non-fossil fuel-based energy resources by 2030.
