OPINION | India must not build a climate finance architecture on shifting grounds

India can still build a credible, investable climate-finance regime that matches global standards while reflecting domestic realities.

India’s regulators have taken strong steps to bring climate and sustainability into mainstream finance. The Securities and Exchange Board of India (SEBI) has mandated structured ESG reporting through the Business Responsibility and Sustainability Report (BRSR) Core, backed by industry assurance standards. The Reserve Bank of India (RBI) has proposed climate-risk disclosures that would make banks quantify exposure to physical and transition risks.

Together, these frameworks mark a shift from voluntary sustainability gestures to mandatory financial oversight. Yet, as the rules multiply, their foundations remain shaky. Each regulator -- SEBI, RBI, the Finance Ministry, and the Ministry of Corporate Affairs (MCA) -- is moving on separate silos, using overlapping indicators and inconsistent definitions. What is missing is a single rulebook, a uniform set of quantified definitions, thresholds and timelines that bind these efforts together.

SEBI’s ESG-debt framework demands pre- and post-issuance verification, but “green” eligibility depends on what issuers claim, not on a national standard. RBI’s climate-risk template is supposed to measure exposure to high-emission sectors, but has no link to any taxonomy thresholds. MCA’s digital reporting formats under the Companies Act capture environmental data but use different indicators. The pieces don’t talk to each other.

The Finance Ministry’s Framework of India’s Climate Finance Taxonomy, released earlier this year, was intended to provide the unifying anchor. A properly crafted taxonomy is necessary because it would be the dictionary of sustainable finance, defining what counts as climate-aligned activity and what does not. Without it, climate disclosure regimes become disconnected reporting exercises.

Taxonomy without teeth

The draft taxonomy, however, remains qualitative. It divides activities into “climate-supportive” and “transition-supportive” but provides no emission thresholds, timelines or exclusion rules. By not quantifying what constitutes green or transition activity, the draft leaves too much room for interpretation, and potential misuse. If implemented in its current form, the taxonomy could undermine the very disclosure reforms it was supposed to anchor.

Contrast this with the EU Taxonomy, which sets technical screening criteria for each sector, defining measurable performance thresholds such as grams of CO₂ per kilowatt-hour of electricity or per tonne of steel. The ASEAN framework, too, uses a traffic light system, distinguishing green, transition and excluded activities. These quantifications make climate finance investable.

This lack of coherence matters because climate finance depends on trust that disclosures are comparable, that green bonds are genuinely green, and that supervisory data mean the same thing across regulators. Without uniform definitions, India’s climate finance system risks losing credibility just as it begins to gain significant scale.

The flexibility argument

Defenders of the current approach argue that India needs flexibility. The economy is still industrialising and coal-dependent, and banks must fund both renewables and efficient coal. Many sectors lack clear low-carbon alternatives, and MSMEs cannot bear complex reporting costs. Strict thresholds could choke investment in transition technologies. The taxonomy therefore leaves space for interpretation, calling itself a “living document.”

That argument has logic, but only up to a point. Flexibility is not the same as ambiguity. If each regulator interprets sustainability on its own terms, investors and supervisors will lose trust in the data, and the capital markets would treat ESG labels as unreliable. Transition finance is useful only if it is conditional, bound by measurable milestones and expiry timelines. Otherwise, it becomes a cover for inertia.

Uniform definitions are more than semantics. They decide how much capital moves and where. Without them, banks may underreport climate risk, companies may overstate green credentials, and public finance institutions may finance projects that conflict with national climate goals.

The counterview is that India should move gradually. It should define principles first, then add numbers. But that sequencing reverses the logic of finance. Markets demand clarity before they commit capital. A taxonomy without numbers or timelines is not a foundation but a placeholder. Investors already face disclosure overload. If the taxonomy stays qualitative, market indifference is a major risk.

Fixing the taxonomy

The remedy is fairly straightforward. The first step is to quantify. The taxonomy should specify measurable performance standards and sector-specific thresholds such as emissions per unit, minimum efficiency improvements and share of low-carbon input for key sectors such as power, steel, cement, and transport to start with, which will be based on domestic research and existing benchmarks. Projects could then be judged on hard numbers, not intentions. This would give both issuers and investors confidence that climate labels have substance.

Second, the taxonomy’s transition category must be tied to time-bound conditions and sunset clauses so that “transition” finance does not become permanent. The third step is to synchronise. The MCA should embed taxonomy alignment into company filings through digital XBRL tagging. SEBI and RBI should align their disclosure templates with the same definitions so that firms and lenders report consistently.

Fourth, verification must be credible. SEBI has already approved accredited ESG assurers and industry assurance protocols. The Finance Ministry and MCA should build on that by creating a common national registry of qualified verifiers, following international assurance standards such as ISAE 3000 or the PCAF methodology. A larger pool of certified assurers is critically needed.

Institutional mechanism

Finally, India needs an institutional mechanism to hold this system together. A Climate Finance Coordination Board, chaired by the Department of Economic Affairs and including SEBI, RBI, MCA, and the Environment Ministry, could maintain uniform definitions, decide update cycles, issue interpretive notes, and resolve disagreements. The Network for Greening the Financial System offers a functional model of such coordination among central banks internationally.

If these fixes are made, the taxonomy could become the backbone of disclosure, not a soft overlay. RBI’s climate disclosure and SEBI’s BRSR might then work in synchrony, not in tension. Investors would know precisely what “taxonomy-aligned” means, reducing scope for greenwashing. Credit flows would have direction and capital would reach genuinely transition-ready firms, not those adept at labelling.

If India fails to sharpen the taxonomy quickly, we risk having mandates without meaning. The narrative would be lots of disclosures, lots of assurance, but little confidence in what lies behind the numbers. Markets would discount taxonomy-based claims, and capital might sidestep the system entirely. In effect, India would build an architecture of green finance, but without structural integrity.

Why coherence matters

The price of incoherence could be costly. India’s green bonds typically trade at smaller spreads than comparable global issues, partly because investors remain unsure of the underlying definitions. Meanwhile, ESG funds are under scrutiny for inconsistent screening standards. The credibility gap will widen if the taxonomy does not bring all the moving parts together.

A unified taxonomy can strengthen India’s market credibility. Quantified thresholds give investors measurable comfort, consistent disclosure formats lower compliance friction, and time-bound transition criteria show that India’s policies are serious, not symbolic. This coherence would not only attract foreign capital but also help domestic institutions like banks, insurers and mutual funds integrate climate risk without duplicating effort.

Fixing the taxonomy will not solve everything, but it is the logical starting point. Numbers create trust, rules create consistency, and coordination creates scale. Once these are in place, the government can move to the next layer of integrating adaptation metrics, launching digital monitoring, reporting and verification (MRV) systems, and building blended-finance facilities that draw private capital into harder sectors. But without common definitions, even the best-designed instruments will misfire.

Although the window is closing, India can still build a credible, investable climate-finance regime that matches global standards while reflecting domestic realities. A single rulebook that is quantifiable, verifiable and time-bound is the only way to turn India’s climate-finance intent into lasting market confidence.