India stands at a crucial crossroads in its energy transition journey, where the imperatives of decarbonisation must integrate with the socio-economic realities of millions dependent on fossil fuel-based livelihoods. A recent report has underscored the urgent need for developing a common taxonomy for just transition financing, emphasising that without a clear framework, financing flows will remain fragmented, limiting India’s ability to ensure fairness, equity, and inclusiveness in its clean energy shift.
The report argues that a common taxonomy would standardise definitions, metrics, and eligibility criteria for projects and investments under just transition, facilitating better alignment among public institutions, private investors, development finance agencies, and impacted communities. Currently, India’s financial ecosystem for just transition remains siloed, with no central framework integrating decarbonisation with social protection, regional economic diversification, and worker reskilling.
Key Findings of the Report
The report outlines several critical findings:
- Lack of definition clarity: ‘Just Transition’ is often interpreted differently across government departments, financial institutions, and corporate ESG frameworks, creating inconsistencies in project approvals and funding flows.
- Fragmented financing landscape: No dedicated national or state-level just transition fund exists; financing is scattered under renewable energy, skill development, and CSR allocations without cohesion.
- Worker transition remains unaddressed: Most financing focuses on clean energy infrastructure rather than social protection, retraining, or community diversification.
- Regional imbalances in financing: Coal-dependent states like Jharkhand, Chhattisgarh, Odisha, and Madhya Pradesh receive limited targeted financing for transition-linked economic diversification.
- Absence of a taxonomy inhibits private capital: Investors lack standard eligibility benchmarks to finance just transition-linked projects within their ESG and sustainability mandates.
Recommended Framework Components
The report proposes the following components for an effective taxonomy:
| Component | Purpose |
|---|---|
| Clear definition of just transition | Align stakeholders on what constitutes just transition activities eligible for financing. |
| Sectoral eligibility | Define sectors beyond renewable energy such as MSME revival, social infrastructure, and reskilling that can qualify. |
| Social impact metrics | Incorporate measurable indicators for employment, livelihoods, and gender inclusion. |
| Regional prioritisation | Focus financing on high fossil-dependency regions with economic vulnerability. |
| Blended finance frameworks | Combine public, concessional, and private capital efficiently under standard guidelines. |
Current Landscape of Just Transition Financing in India
| Financing Channel | Examples | Key Gaps Identified |
|---|---|---|
| Central Government Schemes | Renewable energy subsidies, PLI schemes | No dedicated social protection or transition fund. |
| State Budgets | Skill development, welfare schemes | Not integrated with decarbonisation plans. |
| CSR Funds | Community development in mining regions | Limited scale, scattered impact. |
| Private ESG Financing | Clean energy bonds, green loans | No taxonomy for just transition investments. |
| Multilateral and Bilateral Funding | World Bank, ADB, JETP | Focused on decarbonisation; minimal social transition components. |
Why a Common Taxonomy is Urgent
The report argues that a just transition without taxonomy risks becoming an exclusionary decarbonisation. With India targeting net zero by 2070 and deep decarbonisation by 2050, fossil fuel-dependent communities risk livelihood loss if financing does not integrate social and economic resilience.
Moreover, a standard taxonomy will:
- Unlock private capital by giving investors confidence in ESG-compliant projects.
- Enable blended finance models, combining sovereign, development finance, and private flows.
- Facilitate transparent monitoring, ensuring funds reach intended beneficiaries.
- Strengthen global partnerships, aligning with Just Energy Transition Partnership (JETP) frameworks.
International Examples
| Country | Just Transition Taxonomy Approach | Lessons for India |
|---|---|---|
| South Africa | Integrated in JETP financing with social inclusion metrics for coal-dependent regions | Align national taxonomy with international donor frameworks. |
| European Union | EU Taxonomy for Sustainable Activities includes social safeguards | Ensure social indicators are not secondary but core to financing eligibility. |
| Indonesia | Early-stage development under JETP with focus on coal phase-down financing mechanisms | Develop state-level taxonomies for coal states within a national framework. |
Challenges in Developing a Common Taxonomy
The report cautions about certain hurdles India must address:
- Inter-departmental silos: Ministries of Power, Coal, Finance, Skill Development, and Rural Development need coordinated action.
- Data limitations: Lack of granular labour market and regional economic data hampers robust taxonomy design.
- Political economy risks: Transition plans must ensure local buy-in from coal-rich states fearing revenue and employment loss.
- Capacity constraints: State governments and local institutions lack expertise to implement and monitor complex financing taxonomies.
Way Forward: Actionable Recommendations
The authors suggest an immediate roadmap for policymakers:
- Initiate a national task force under the Ministry of Finance to design a taxonomy integrating decarbonisation and just transition.
- Develop state-level just transition plans with defined taxonomy-linked financing pipelines.
- Engage financial institutions including RBI, SEBI, public sector banks, and private investors to ensure taxonomy compatibility with existing green financing frameworks.
- Incorporate taxonomy design in upcoming JETP negotiations, to align international funding with domestic definitions.
- Launch pilot projects in one or two high fossil-dependent districts to test and refine taxonomy metrics.
The Broader Economic and Social Impact
The report warns that without urgent steps, India risks exacerbating regional inequalities, joblessness, and social unrest in fossil fuel regions even as national decarbonisation progresses. A robust taxonomy will ensure:
- Equitable distribution of transition benefits across regions and social groups.
- Improved investor confidence in financing socially responsible clean energy projects.
- Enhanced global reputation as a country prioritising inclusive and sustainable development pathways.
Final Observations
India’s G20 presidency, ongoing JETP discussions, and net-zero commitments provide an opportunity to lead by example in designing a holistic, equity-focused, and investable just transition framework. A common taxonomy will not only mobilise billions in financing but also embed justice and dignity at the heart of India’s clean energy future.
Disclaimer: This content is intended for general information purposes only. It does not constitute professional advice or investment recommendations.
