Global Climate Taxonomies and Indian Banking Sector: A Systematic Literature Review

DOI: 10.22161/ijeab.111.16

Abstract:
As countries accelerate their transition towards low-carbon economies, climate finance taxonomies have emerged as a critical policy instrument for channeling financial flows into environmentally sustainable activities. A climate finance taxonomy is defined as a structured framework to classify economic activities based on their alignment with climate objectives such as enhancing resilience and supporting transitions in carbon- intensive sectors. They provide common definitions and benchmarks to reduce greenwashing and enhance transparency (Network for Greening the Financial System, 2022). Most of the existing taxonomies, like UK, EU have been developed in advanced economies with market-oriented financial systems, hence raising questions about their relevance for emerging economies such as India. In India, banks dominate the financial system and play a pivotal role in financing infrastructure, industry and micro, small and medium enterprises (MSMEs) that are vital for growth yet highly carbon-intensive. India's Draft Climate Finance Taxonomy, released by the Ministry of Finance (MoF), in May 2025, seeks to address this challenge by guiding climate-aligned finance while clearly recognizing national development priorities and transition realities. The practical implications of the taxonomy for Indian banks are still underexplored. This study reviews a comparative literature of global climate finance taxonomies and finds their applicability to the Indian banking sector. Using a qualitative and comparative methodology, the study reviews international climate taxonomies’ frameworks alongside India’s draft taxonomy. The findings suggest that although global taxonomies provide valuable reference points for standardization and climate risk management, their direct transplantation into India’s banking system may be inappropriate. India’s Draft Taxonomy 2025, with its emphasis on transition pathways and development sensitivity, appears better aligned with domestic realities. This study has explored the literature on comparative evolution of climate finance taxonomies and their implications for India’s bank‑dominated financial system. The paper concludes with policy-relevant recommendations for regulators and banks to strengthen taxonomy implementation while advancing sustainable and inclusive economic growth.

Keywords:
Climate Finance Taxonomy, Indian Banking Sector, Ministry of Finance, Global Taxonomies Comparison.

Article Info:
Received: 09 Mar 2026; Received in revised form: 11 Apr 2026; Accepted: 15 Apr 2026; Available online: 24 Apr 2026

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