Statement-I: A climate finance taxonomy helps investors determine whether an economic activity aligns with climate goals by providing standardised definitions and metrics. Statement-II: A localised taxonomy framework can support India in attracting climate-aligned investments and meeting its net-zero commitments.
Which one of the following is correct in respect of the above statements?
(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
(c) Statement-I is correct but Statement-II is incorrect
(d) Statement-I is incorrect but Statement-II is correct
Explanation Statement 1 is correct: Climate finance taxonomy refers to a set of standardised regulations and guidelines to inform companies and investors on making impactful investments towards environmental conservation and combating the climate crisis. It is the scientific method of naming and classifying organisms, including plants, animals, and microorganisms. Climate finance taxonomies can facilitate financing for investors, credit institutions etc. based on how climate-aligned an entity or an activity is. It can therefore direct financial resources towards projects that support climate change mitigation and adaptation. Taxonomies for sustainable climate financing, in general, include a detailed list of economic sectors and activities and corresponding criteria that determine if it aligns with larger climate goals. A localised climate finance taxonomy can also help align a country’s climate goals with the Paris Agreement and other international climate commitments while accounting for regional factors that influence localised transition pathways.
Statement 2 is correct: According to the IFC, India needs an estimated $10.1 trillion to achieve net-zero by 2070. Public investments alone can’t match this goal, which calls for standardisation in investments. A green taxonomy framework could significantly help India attract both domestic and international investments, aligning these funds with its national and global commitments to a green transition and enhanced climate resilience. Green taxonomies help investors compare investment opportunities and measure their environmental impact.
Statement 2 is not the correctfor statement 1: While both statements are correct, Statement-II does not serve as anfor Statement-I. Statement-I discusses the general utility of climate finance taxonomies for investors, whereas Statement-II focuses on India's specific application of such a taxonomy to achieve its climate goals.
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