Towards a Structured Green Finance Regime: Taxonomy Design for Life and General Insurance Sectors in India

Abstract

Green Finance is emerging as an important tool to support climate action and promote sustainable economic development. However, policy and regulatory framework which governs green finance still remains at a nascent stage with the absence of standardized taxonomy. At present, there is a lack of formal definitions, eligibility criteria, and technical screening standards for classifying insurance products and investments as green. This gap hinders the insurance sector’s ability to scale credible green products. Hence, the researcher proposes a green finance taxonomy for the life and general insurance sector in India. This green finance taxonomy focuses on two core dimensions of underwriting of products and investment of assets. This green finance taxonomy is based on European Union’s Taxonomy for Sustainable Activities and contextualized to align with India’s emerging climate finance taxonomy. It incorporates core principles of Substantial Contribution (SC), Do No Significant Harm (DNSH), and Minimum Social & Governance (MSG) safeguards. These core principles align with key environmental objectives of climate change mitigation, adaption, pollution control, and biodiversity protection. The researchers further proposed a road map to implement this framework to move from voluntary guidance to phased disclosure, and mandatory compliance. This proposed taxonomy will enable IRDAI to build a structured, transparent, and accountable green finance regime.