Climate finance encompasses financial flows supporting climate change mitigation and adaptation projects. RBI mandates climate risk disclosure under Business Responsibility and Sustainability Reporting (BRSR) for listed entities and requires banks to develop climate risk management frameworks. SEBI introduced mandatory ESG disclosures for top 1000 companies by market capitalization. Green taxonomy classifies environmentally sustainable economic activities. India's National Green Taxonomy aligned with EU taxonomy principles covers six environmental objectives. RBI's climate stress testing guidelines require scenario analysis for banks' portfolios.

Climate finance bridges the funding gap for India's net-zero 2070 commitment, requiring $10 trillion investment. RBI's approach focuses on systemic risk management - climate events can trigger widespread bank defaults through agricultural losses, infrastructure damage, and stranded fossil fuel assets. The central bank mandates climate risk disclosure because extreme weather affects loan portfolios differently across regions and sectors. SEBI's ESG framework aims to redirect capital flows toward sustainable projects by making climate performance transparent to investors. Green taxonomy provides standardized definitions preventing 'greenwashing' - where companies falsely claim environmental benefits. This matters because misallocated climate finance undermines both environmental goals and financial stability. International alignment with EU taxonomy helps Indian companies access global green bonds and climate funds. The framework affects everything from bank lending decisions to insurance premium calculations, making climate considerations integral to India's financial system rather than peripheral CSR activities.