Written By: Shashank Pandey

In May, the Ministry of Finance released India’s draft Climate Finance Taxonomy for public consultation. Positioned as a foundational policy tool, the taxonomy aims to mobilise climate-aligned investments and prevent greenwashing. It seeks to provide clarity to investors by identifying sectors, technologies, and practices that contribute to mitigation, adaptation, or the transition of hard-to-abate sectors. It is the first step towards a structured regulatory framework for climate finance in India.

The Supervisory Body of Article 6.4 has adopted a legal and editorial review system for its climate market instruments.

Importantly, the document calls itself a “living” framework, adaptable to India’s evolving development priorities and international obligations. However, its success as a credible governance tool will depend on how well it operationalises this principle. A living document is not just one that allows updates but rather one that institutionalises review, feedback, and revision with rigour, predictability, and transparency.

Herein, I propose a structured review mechanism for the taxonomy, drawing from the recent regulatory innovations under the Paris Agreement’s Article 6.4 Mechanism. The Supervisory Body of Article 6.4 has adopted a legal and editorial review system for its climate market instruments. These principles offer a useful reference for India’s taxonomy to ensure investor confidence, legal clarity, and domestic-international alignment.

The review architecture

In the Indian context, the review system for the climate finance taxonomy should function on two distinct but complementary levels. First, there must be a periodic review mechanism that allows for timely course correction. These reviews should take place annually and be triggered by identifiable implementation gaps, evolving international obligations, stakeholder feedback, or changes in domestic policy and legal frameworks. To be effective, they must follow a structured and predictable process, with fixed timelines, clear documentation protocols, and mandatory public consultation. Without this level of regular scrutiny, the taxonomy risks becoming a static document that fails to respond to real-world developments or market needs.

A five-year cycle is not arbitrary, and it corresponds with India’s updated Nationally Determined Commitments (NDCs) timeline and the global stocktake process under the United Nations Framework for the Convention on Climate Change, ensuring alignment with both national and international climate frameworks

Alongside this, a recurring review should be institutionalised to take place every five years. This deeper, more comprehensive process would provide an opportunity to reassess the taxonomy in light of emerging trends in carbon markets, shifts in global climate finance definitions, and lessons learned from sectoral transitions. A five-year cycle is not arbitrary, and it corresponds with India’s updated Nationally Determined Commitments (NDCs) timeline and the global stocktake process under the United Nations Framework for the Convention on Climate Change, ensuring alignment with both national and international climate frameworks. Together, these two levels of review would ensure that the taxonomy remains both responsive in the short term and resilient in the long term.

The substantive aspect of the review

Two key aspects must form the basis of any meaningful review for operationalisation of the taxonomy: legal coherence and substantive content clarity. The legal assessment should examine the taxonomy’s alignment with India’s domestic laws, including the Energy Conservation Act, SEBI disclosure norms, and the Carbon Credit Trading Scheme (CCTS), as well as with India’s obligations under international law. The review should focus on ensuring enforceability, removing redundancies, clarifying jurisdictional overlaps, and harmonising terms across instruments. In addition, the review must identify interdependencies between climate finance mandates and other economic or fiscal measures such as green bonds, blended finance schemes, or environmental risk disclosures, so that revisions to one do not create inconsistencies in another.

The substantive editorial review must ensure that the taxonomy remains readable, coherent, and technically precise. Definitions must reflect evolving market standards and be usable by both expert institutions and non-expert actors. Where quantitative thresholds exist, for instance, GHG emissions reduction targets or energy efficiency benchmarks, these must be updated with empirical data and stakeholder input. 

Crucially, these reviews must also ensure that the taxonomy remains accessible and relevant for MSMEs, the informal sector, and vulnerable communities. These segments will play a central role in India’s net-zero ambition, but often face capacity, data, and compliance barriers. The taxonomy must therefore continue to provide simplified entry points, staggered compliance timelines, and proportionate expectations, especially in sectors like agriculture, small manufacturing, and decentralised energy.

Institutionalising accountability

To support such a review structure, the Ministry of Finance should establish a standing unit within the Department of Economic Affairs or an expert committee composed of stakeholders from financial regulators, climate science institutions, legal experts, and civil society. Public dashboards can be developed to receive inputs, document implementation experiences, and publish review reports. These measures will ensure that the taxonomy not only evolves but does so in a way that is predictable and transparent.

A “living document”, as taxonomy is envisaged, is only as effective as the process that keeps it alive through active review, transparent revision, and structured engagement with those it intends to regulate

Annual review summaries and five-year revision proposals must be made publicly available, ideally in a consolidated format, to improve investor confidence and ease of access. This will also enable better coordination with parallel instruments, such as India’s carbon market mechanisms, disclosure obligations, and green bond frameworks.

Looking ahead

The taxonomy’s rollout coincides with critical developments in India’s climate finance ecosystem. The CCTS is expected to fully operationalise, green bonds are entering mainstream portfolios, including on the stock market, and the pressure to align public investment flows with long-term climate goals is rising. A weak or opaque taxonomy will undercut these efforts. A “living document”, as taxonomy is envisaged, is only as effective as the process that keeps it alive through active review, transparent revision, and structured engagement with those it intends to regulate. It is hoped that such consideration will form part of the final climate taxonomy framework.

The piece is originally published in The Hindu. Read here!

About the Author:
Shashank Pandey is a lawyer and Researcher in Environmental and Climate Change Law. He is the curator of the Climate Finance Watch Blog.