Source-This post on Green taxonomy is based on the article “Towards a green growth: On the RBI and a green taxonomy” published in “The Hindu” on 28th March 2024.
Why in the news?
The latest RBI’s Monetary Policy Report gives primacy to the impact of climate shocks on the economy’s financial stability. This reflects RBI’s step towards the adoption of the system of green taxonomy, being used by the ASEAN countries.
About green taxonomy
1. About green taxonomy: Green taxonomy is a framework that is used to determine environmentally sustainable investment in the economy. It helps in classification of whether the economic activities as green and environmentally sustainable.
2. Aim: It aims to increase investment in green activities and assets and facilitate the detection of greenwashing practices.
3. Necessity of incorporation of green taxonomies:
a) It helps the financial markets to align their investments with the goal of net-zero emissions.
b) It also helps in the cultivation of an environmentally sustainable economy. It also helps to reorient capital towards environmentally sustainable economic activities.
4. How RBI and Finance Ministry can utilise green taxonomy:
a) The RBI and Finance Ministry can draw lessons from the ASEAN region. The ASEAN countries have adopted a dynamic green taxonomy, which is continuously updated according to the evolving sustainable practices in different sectors.
b) RBI has taken positive steps towards green taxonomy by issuing Sovereign Green Bonds and expanding participation in green government securities by Foreign Institutional Investors.
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