As the world turns its attention to the upcoming climate change conference in Bonn organised by the United Nations Framework Convention on Climate Change (UNFCCC) as well as the 30th Conference of Parties (COP 30), there is an expectation of a more extensive focus on building resilient approaches to climate change. Adaptation, long overshadowed by mitigation in global discourse, has found renewed focus in recent times, gaining traction. India too recently submitted its first initial adaptation communication (ADCOM) and is in the progress of preparing its inaugural National Adaptation Plan (NAP). On the adaptation route of climate change, another critical milestone that India attempts to add is a climate finance taxonomy. The draft of the Framework of India’s Climate Finance Taxonomy, was introduced for public comments. The taxonomy draft emphasises on a detailed structure and lays the foundation for development of an official climate finance architecture, allowing for better prioritisation and mobilisation of resources. However, it seems to be more mitigation aligned, with adaptation relatively finding a minimal mention.
It is critical to understand that a climate finance taxonomy forms a critical component in the climate strategy of a nation. It highlights a country’s climate ambition, by providing an official classification system to define what qualifies as climate related finance, be it mitigation or adaptation. Such a framework is pivotal for internal coherence in planning and budgeting of various strategies and initiatives that the government deems as contributing towards dealing with climate change. At the same time, it plays a key role in external communication. A taxonomy conveys the climate prerogatives and national priorities to various international stakeholders, including donors, investors, and multilateral agencies. These in turn, then aid to strengthen claims for climate finance and ensure transparency in the tracking of funds that often stands at dispute due to the no globally agreed definitions of climate change mitigation and adaptation efforts.
India’s initiative for the development of a climate finance taxonomy is thus a timely and welcome move. However, the disproportionate focus between mitigation and adaptation raises concerns. This imbalance risks the production of a holistic taxonomy, as well as not facilitating the complete narrative about India’s existent climate priorities. While the taxonomy does refer to inclusion of sectors of agriculture and water in the current iteration, the critical sectors of disaster management and infrastructure resiliency and related impacts on livelihoods, health, that India is highly vulnerable to, are kept outside of the current draft’s purview.
This is surprising more so because at the global level, India is a significant part of the negotiations on the UAE-Bélem work program on Global Goal on Adaptation (GGA). In fact, India has engaged with the evolving framework of the GGA through its Initial Adaptation Communication. The GGA involves a much wider sectoral coverage, highlighting critical parameters and areas for adaptation. It involves specific adaptation targets for defined pivotal sectors, that include water, food and agricultural production, health, ecosystems and biodiversity, resilience of infrastructure and human settlements, poverty eradication and livelihoods, and cultural heritage. As can be observed, this sectoral coverage goes much beyond the adaptation sectors as covered in the current draft of the taxonomy. In fact, the GGA also expresses interest in the role of indigenous technologies and local knowledge systems to adapt better to climate change. This underscores the essential need for robust national systems like taxonomies to include and support adaptation priorities that reference alignment with international commitments, highlighting India’s engagement with metrics, methodologies, and targets for climate resilience in critical sectors.
Further, it is critical also because the lines between adaptation expenditure and developmental expenditures are often blurred. Infrastructure upgrades, rural employment schemes, etc., may have adaptation benefits, but in the absence of clear definitions and classification systems, they may not be recognized or funded as such. The ambiguity in turns carries the potential to undermine the very purpose of the taxonomy and may even encourage greenwashing, i.e., when non-climate activities are branded as climate finance without meaningful impact. To avoid such a situation, it is pivotal for the taxonomy to clearly establish that adaptation is not a co-benefit from developmental activities, but a separate entity contributing to climate action, in itself. One solution could be to reference established frameworks like the Adaptation Committee’s guidance on adaptation and resilience. At the same time, introducing a dedicated annex or glossary with specific examples of adaptation interventions, using typologies from established sources like the IPCC, India’s IAC, etc. This will aid taxonomy users in distinguishing credible adaptation activities from general development projects.
An essential corollary that then emerges is the recognition of cross-cutting investments that involve both mitigation and adaptation components. These include nature-based solutions, sustainable agriculture, integrated infrastructure, etc. The taxonomy would benefit further with a separate categorisation or an additional objective to identify and capture such dual-benefit activities and thus finances, for widespread application.
Furthermore, the adaptation finance agenda has been bereft of private sector participation for the longest time. However, rising global interest in climate resilience suggest that private sector investments in adaptation could witness an increase in the coming years. To enable this shift, the private sector will require a well-defined framework that clearly outlines what qualifies as adaptation activities and what type of investments can be supported. In the absence of such a holistic structure, uncertainty might continue to restrict private capital flows into adaptation finance.
Looking ahead, India’s climate finance taxonomy presents an opportunity to shape the narrative of climate action. It can set the base for many other developing countries seeking to balance economic growth with climate responsibility. At the same time, it then increases the onus on India to ensure careful calibration and consideration before finalising the same. Over emphasis on one aspect may mislead signals to the private sector and international community, suggesting that resilience-building and adaptation are form a part of less focused priorities. In reality, they are deeply intertwined with sustainable development and national well-being. The taxonomy, thus as the backbone of climate finance classification, must reflect this dual urgency.
(Views expressed are the authors’ own and don’t necessarily reflect those of ICRIER)
