On Wednesday, the Finance Ministry unveiled a draft framework for a climate finance taxonomy aimed at helping investors identify projects and activities that align with India’s climate objectives and transition strategies. The initiative is designed to boost investment in sustainable technologies and practices by providing clear guidance on what qualifies as climate-aligned.

The draft proposes a "hybrid approach" that combines both qualitative and quantitative elements, to be rolled out in stages. Initially, it will focus on qualitative criteria, establishing a broad framework in line with national goals such as inclusive development, achieving net-zero emissions by 2070, reaching developed nation status by 2047, and sector-specific low-carbon transition plans. This approach also prioritizes long-term access to affordable and reliable energy.

Over time, the framework will incorporate quantitative measures like emission thresholds and benchmarks. However, rather than setting absolute limits, it will emphasize relative performance targets, such as percentage-based improvements. This taxonomy—essentially a standardized classification system for sustainable investments—was first proposed in the Union Budget to guide climate-related financing decisions.