01-07-2025
India's climate taxonomy must include Loss & Damage
Written by Evita Rodrigues
Last month, India released a draft climate taxonomy marking a critical step towards aligning financial flows with national climate goals. As a classification system that qualifies what counts as 'green' or 'transition' activities in the Indian context, the climate taxonomy seeks to guide investors, companies and policymakers in identifying and mobilising finance for climate action.
While it outlines clear priorities for climate mitigation and adaptation, the draft taxonomy overlooks what is increasingly being recognised as a critical third pillar of climate action: Loss and Damage (L&D).
Understanding Loss and Damage
Loss and Damage refers to irreversible impacts of climate change that are beyond the limit of what people can adapt to. These include impacts that are both economic, such as destruction of homes, loss of livelihood income or crop failure, and non-economic, such as physical and mental health impacts, loss of education and cultural heritage. These are typically difficult to quantify. L&D arises from both sudden-onset disasters like floods and cyclones, as well as slow onset events like sea-level rise, or riverine erosion.
Globally, L&D has long been a politically fraught and chronically underfunded area. After decades of pressure from the developing world, a dedicated Global L&D Fund was operationalised in 2023 at COP28. While this marked a breakthrough moment in climate diplomacy, experts estimate that the fund's current pledge serves less than 0.2 per cent of the estimated annual loss faced by developing countries annually.
While continued calls for reparations from the developed world are both necessary and urgent, it is evident that the magnitude of harm far exceeds what will ever be delivered through global funds. With this funding gap unlikely to be closed anytime soon, what does it mean for a country like India where communities are living through climate-induced L&D year after year?
India's climate vulnerability
As the world's seventh most climate-vulnerable country, India is on the frontlines of escalating climate impacts. As per World Bank estimates, over 80 per cent of India's population lives in areas vulnerable to climate-induced disasters. From coastal erosion in Odisha to floods in Assam and extreme heat in Gujarat, climate impacts are intensifying and often hitting the most marginalised first.
With high hazard exposure meeting deep-seated socio-economic vulnerability, whether in agriculture-dependent rural areas or precarious urban informal settlements, efforts to adapt are critical. But in many cases, this is no longer sufficient in the face of irreversible and compounding climate loss.
Across India, state and district disaster departments remain the default responders to climate loss, without the financial support to act beyond providing immediate and temporary relief. Compensation is often delayed, insufficient or even non-existent especially for informal workers or migrants.
In our engagements with city officials and community organisations as a part of ongoing research with UNEP & ICLEI South Asia, the lack of policy recognition and financing pathways consistently emerge as a critical challenge. This gap forces individuals and households to absorb costs of climate change on their own, deepening debt and stalling recovery. These losses range from income lost when floods disrupt daily wage work, increased healthcare expenditures during heatwaves, or children's loss of learning due to school closures during extreme events.
Rethinking green finance: Why the taxonomy matters
This is where India's climate taxonomy offers a critical opportunity to shape what counts as a climate-aligned investment, and to meaningfully support communities in the process. Incorporating the concept of L&D could unlock and incentivise domestic financing pathways for critical but neglected areas such as housing reconstruction, livelihood recovery, social protection for displaced communities, allowing frontline responders, whether government or non-government, to access capital for more comprehensive, people-centred recovery.
It is also an opportunity to align existing public finance through national government schemes, such as MGNREGA, PDS, housing missions to absorb L&D costs. With climate-smart and green budgeting gaining traction across several states, state-specific development schemes could be aligned with L&D responses. All this requires a finance architecture that explicitly recognises and enables such spending.
Incorporation into the taxonomy alone may not solve all challenges. Instead, this must be paired with robust data and assessment systems to track loss, especially non-economic aspects, community involvement in defining L&D given its deeply contextual nature, and institutional changes to bridge the silos between climate, disaster relief and social welfare. Without a financial framework that acknowledges realities on ground, there is little incentive, or means, to even report these losses, perpetuating a cycle that remains invisible, undercounted and unfunded.
At COP28, India made a critical intervention calling for equity and climate justice to be at the core of global discussions on climate change. We must apply this very lens inwards to communities facing loss at home. India has long advocated for climate finance that works for the Global South, but by excluding L&D in our domestic frameworks, we risk replicating the narrow imagination of climate action we have pushed back against globally. We must widen and evolve our idea of just transitions to not only be about future-proofing, but repairing and compensating harm that has already been borne.
The writer is an Urban Governance Associate with Transitions Research. She is currently working on a UNEP-supported project assessing climate-related Loss and Damage across three Indian cities
