India's Green Finance Faces Crucial Test

India's transition to net-zero emissions faces a substantial financial hurdle stemming from the absence of a defined green finance taxonomy. This regulatory gap complicates tracking climate finance and influences public and private investment.

Experts highlight a fragmented regulatory landscape, with a critical need for a national green taxonomy. This is anticipated by the end of fiscal year 2027, according to Finance Minister Nirmala Sitharaman's Budget FY25 announcement, aiming to enhance capital for climate adaptation and mitigation.

NITI Aayog estimates a massive $22.7 trillion investment is required by 2070 for net-zero, projecting a financing gap of $6.5 trillion. The Reserve Bank of India is adopting a phased approach, focusing on capacity building within regulated entities.

Concurrently, businesses exporting to the European Union must adapt to its stringent environmental and sustainability requirements, part of initiatives like the European Green Deal. Non-compliance by 2026-2030 could lead to significant market access barriers.

Despite these challenges, India's green financing is evolving, aligning with international standards like the ICMA Green Bond Principles. Financial institutions are developing internal frameworks to map exposures to green sectors, ensuring 'do no significant harm' and transition alignment.

However, there's a notable lack of policy outreach regarding climate risks, disproportionately affecting vulnerable households, especially women, through increased medical costs and reduced income due to extreme weather events.