Source- This post on the Climate Finance Taxonomy has been created based on the article “What is a climate finance taxonomy, announced by FM Sitharaman?” published in “Indian Express” on 25 July 2024.
Why in the news?
The Union Budget for 2024-25 included an announcement by the finance minister about developing a ‘climate finance taxonomy’ in India.
About Climate Finance Taxonomy:
1. About: It is a system that classifies which parts of the economy can be marketed as sustainable investments.
2. Purpose: To guides investors and banks in channeling funds toward impactful investments to combat climate change.
3. Uses: To sets standards for climate-related financial instruments (like green bonds) and serves in climate risk management, net-zero transition planning, and climate disclosure.
4. Global Examples: Countries like South Africa, Colombia, South Korea, Thailand, Singapore, Canada, Mexico, and the European Union have developed their own taxonomies.
5. Significance:
i) Net-Zero Economy: It helps countries transition to a net-zero economy, balancing the production and removal of greenhouse gases (GHG).
ii) Alignment with Science: It ensures economic activities align with credible, science-based transition pathways.
iii) Climate Capital Deployment: It encourages the flow of funds toward climate adaptation and mitigation.
iv) Greenwashing Prevention: It reduces the risk of misleading claims about environmental benefits (greenwashing).
v) Capital Availability: It increases capital for climate initiatives, aiding India in meeting its climate commitments and green transition goals.
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