India's G20 Presidency Presents Opportunity to Harmonise Green Taxonomies

Divergent green taxonomy frameworks across 29 jurisdictions are creating barriers to cross-border sustainable capital flows, and India's G20 Presidency provides a strategic opportunity to advance international harmonisation and interoperability of these classification systems, according to a new analysis published by the Institute for Energy Economics and Financial Analysis. The world requires an estimated US$9.2 trillion in annual investment for climate mitigation alone, and a common definition of what constitutes green is seen as a prerequisite for mobilising capital at that scale.

Current green taxonomies range from whitelist-based systems such as China's, to technical screening criteria-based approaches such as the European Union's, to principle-based frameworks such as those of Malaysia and Japan. These methodological differences create confusion for cross-border investors and raise greenwashing risks. The International Platform on Sustainable Finance has developed a common-ground taxonomy to promote interoperability, but its adoption remains voluntary and uneven. Within India, both the Reserve Bank of India and the Securities and Exchange Board of India have issued separate green classification frameworks, creating ambiguity for investors targeting India's clean energy transition.

IEEFA argues that taxonomy clarity is especially critical for Indian micro, small, and medium enterprises, which rely heavily on bank financing but currently lack a standardised framework that banks can use to assess and price green lending to this sector. India has also recently introduced a domestic carbon market and green credit programme, for which taxonomy definitions are needed to remove ambiguity about eligible activities. The 3 July 2023 recording of the hottest global average temperature on record — 17.01 degrees Celsius — is cited in the article as underscoring the urgency of accelerating climate finance flows.

IEEFA recommends that India use its G20 Presidency to push for a cross-border task force among member countries to support and operationalise the International Platform on Sustainable Finance's taxonomy interoperability work. Science-based approaches should form the baseline for any common language to prevent political economy considerations from diluting definitions. The analysis also urges that any harmonisation process explicitly accommodate the unique circumstances of developing economies, including their different transition pathways, adaptation priorities, and sustainable development goals. High-level dialogues through the Sustainable Finance Working Group and international financial architecture meetings are identified as the appropriate forums for advancing this agenda.

Key figure — US$9.2 trillion — estimated annual investment requirement for climate mitigation alone, highlighting the need for harmonised green taxonomy standards