Dr. Arvind Kumar*
Climate finance lies at the heart of climate justice, yet inequities and broken promises persist. Developing nations face trillion-dollar needs but receive little support, while high borrowing costs and political backtracking erode trust. India, despite major progress, struggles to balance ambition with affordability as its draft taxonomy overlooks national realities. Closing these gaps demands fairer credit systems, innovative financing, transparent carbon markets, and equity-driven frameworks.
As our world reels under the mounting pressures of climate disruption, one truth looms unavoidably clear: the struggle against global warming is, at its essence, a matter of financial justice. Climate finance money dedicated to reducing emissions, bolstering resilience, and protecting ecosystems is no longer a technical footnote. It has become the crucible in which our collective survival will be determined.
The scale of the challenge illustrates why. According to the International Monetary Fund, developing countries in Asia alone will require at least $1.1 trillion every year for mitigation and adaptation. Yet actual investments hover around just $333 billion, leaving a shortfall of nearly $800 billion. Even though climate finance more than doubled between 2018 and 2022, the world still needs a fivefold surge to remain on track for planetary survival.
This gap underlines that the global climate finance architecture spanning the Green Climate Fund, multilateral development banks, bilateral commitments, and innovative mechanisms is not simply a technocratic network. It is the only means to ensure equitable survival in a world where environmental breakdown spares no nation, yet punishes the least responsible most harshly. By 2030: India needs around USD 2.5 trillion investment to meet its Nationally Determined Contributions (NDCs). Approximately USD 50 billion annually for mitigation efforts.
The Price of Inaction
However the moral asymmetry is stark. Nations that have contributed least to climate change particularly Small Island Developing States and Least Developed Countries are being battered the hardest by rising seas, floods, and extreme weather. Their governments, already burdened with debt and competing priorities, also shouldering colossal costs almost alone. The inequities deepen when financing conditions are considered. In Africa, only 18% of mitigation and 20% of adaptation needs are currently met flows must quadruple to align with national climate goals.
Nearly three-quarters of rich countries enjoy investment-grade credit ratings, while fewer than one in five upper-middle-income countries do, and none among low-income states. This disparity drives up borrowing costs, making green transitions prohibitively expensive. Borrowing rates for a 100 MW solar project stand at 10–11.5% in India and 11–13.5% in South Africa, compared with just 2.8% in Germany. A single percentage-point cut in emerging-market borrowing costs could unlock as much as USD 150 billion annually for net-zero projects. The injustice is glaring and entirely avoidable.
Instead of narrowing these divides, political choices have often widened them. The retreat of the United States is a case in point. In January 2025, Washington rescinded climate-finance pledges, withdrew from the Paris Agreement and UNFCCC mechanisms, abandoned Just Energy Transition Partnerships with South Africa, Indonesia, and Vietnam, and even reneged on a token $17.5 million contribution to the UN Loss and Damage Fund. This reversal not only undermined global momentum but also deepened the already fragile trust underpinning climate negotiations.
This fragility reflects a longer history of broken promises. At COP15 in Copenhagen (2009), developed nations pledged $100 billion annually by 2020 a target that was still unmet well into the 2020s. COP21 in Paris (2015) merely reaffirmed this figure, while actual flows fell short: $83.3 billion in 2020 and $89.6 billion in 2021. At COP26 in Glasgow (2021), India’s Prime Minister announced a 2070 net-zero target and the “Panchamrit” vision, but his call for $1 trillion in climate finance only exposed the hollowness of earlier pledges. COP29 in Baku (2024) finally unveiled the New Collective Quantified Goal (NCQG) of $300 billion annually by 2035 belatedly conceding that the $100 billion promise had never been met. The result is a deep credibility gap at the heart of global climate finance.
India’s Tightrope Walk
For India, this credibility deficit translates into a daily balancing act between development and duty. With its net-zero pledge by 2070 and a 45% reduction in emissions intensity by 2030, the financing requirements are measured in the trillions. Progress has been significant: the share of installed non-fossil fuel capacity already stands at 45%, and solar capacity has skyrocketed from 2.82 GW in 2014 to 110.9 GW in 2025 with an ambitious target of 500 GW of non-fossil energy by 2030.
Yet the challenge is affordability. Even a 1–2% rise in interest rates can inflate electricity tariffs by 5–7% a burden India cannot bear. The strain is compounded by U.S. tariffs 25%, and potentially up to 50% on Indian exports, including solar modules, citing India’s continued purchase of Russian oil. These measures inflate costs and distort fair trade in clean energy. ith US$50 billion annually for climate mitigation, policy initiatives and a growing green bond market drive investment. India’s Viksit Bharat initiative accelerates sustainable finance in India, making it the second-largest funding hub for climate-related companies in 2024, surpassing China with US$5.1 billion in funding.
It is in this context that the Ministry of Finance unveiled its Draft Climate Finance Taxonomy, now open for public consultation. Conceived as a living framework to guide investments toward climate-aligned activities in pursuit of the 2070 net-zero goal, the draft unfortunately borrows heavily from international models without anchoring itself in India’s unique realities. It places undue focus on low-emission sectors like agriculture while overlooking high-emission ones such as energy, transport, steel, cement, and construction. Key concepts remain undefined; timelines, criteria, and governance mechanisms are missing; and indigenous solutions, cross-sectoral approaches, and equity considerations are largely absent. Without corrective action, the taxonomy risks becoming externally driven, sectorally misplaced, and insufficiently attuned to national priorities.
Way Forward
Bridging these gaps requires systemic reform both globally and nationally. At the international level, the community must pioneer innovative financing tools, such as zero-interest, perpetual “Climate Justice Facility” loans that relieve debt rather than deepen it. Multilateral institutions must expand local-currency lending and guarantees to unlock private capital, while credit rating systems must be reoriented to reflect structural equity instead of reinforcing historical disadvantage. At the national level, governments must align robust infrastructure and financial strategies with their Nationally Determined Contributions. Simultaneously, Article 6 carbon markets under the Paris Agreement must be expanded under transparent UN oversight to channel finance with accountability and credibility. For India, strengthening its taxonomy will be crucial removing fossil fuel inclusions, embedding equity and governance safeguards, and ensuring that financing flows align with sectoral transition pathways.
Ultimately, climate finance must be recognized for what it is: financial justice. Not fragmented or opaque mechanisms. Anything less than a decisive lever will condemn the world to deeper divides between those who can pay their way to resilience and those left stranded on the frontlines of a crisis they did not create.
*Editor, Focus Global Reporter
