Give our climate finance framework a firm foundation

India is building what looks like an impressive climate finance architecture.

- SOUMYA SARKAR

Regulators are demanding disclosures everywhere. The Reserve Bank of India (RBI) has said that banks must report climate risks. Securities and Exchange Board of India (Sebi) rules require mandatory sustainability reports. Green bonds need verification. On paper, it all sounds serious. There’s just one problem. Nobody agrees on what ‘green’ actually means.

The recently released draft framework of India’s climate finance taxonomy by the finance ministry, aimed at anchoring our nascent system, is supposed to fix this. Such a taxonomy is meant to define precisely what counts as climate-friendly and what doesn't. Instead, the draft reads more like a mission statement. Activities are labelled as climate-supportive or transition-supportive without any actual numbers attached.

It compares poorly with other systems. Consider the EU’s approach. Its taxonomy specifies exact thresholds in terms of grams of carbon dioxide per kilowatt-hour for electricity, emissions per tonne of steel produced, and so on. Nations of the Asean group use a traffic-light system with clear boundaries between green, transition and excluded activities. These aren’t just bureaucratic details. They make climate finance investable by telling investors exactly what they're buying. India’s framework, by contrast, leaves interpretations wide open. A coal efficiency project could qualify as transition-supportive under one regulator's reading and fail under another's. The same renewable energy project might be green to Sebi but not meet RBI's criteria. This isn't flexibility. It's confusion with consequences.