Mongolia’s SDG Finance Taxonomy: A Roadmap for Sustainable Investment

Mongolia’s latest SDG Finance Taxonomy Pilot, spearheaded by ADB, UNDP, and MSFA, expands green finance to include social impact investments in education, healthcare, and infrastructure. The pilot study at Golomt Bank and Khan Bank highlights both opportunities and challenges in scaling sustainable finance. Key recommendations include clearer investment criteria, enhanced tracking systems, and stronger investor alignment. Mongolia is now positioned as a regional leader in SDG-aligned finance, but further collaboration and policy enhancements are needed to maximize impact.

The Asian Development Bank (ADB), in collaboration with the United Nations Development Programme (UNDP) and the Mongolian Sustainable Finance Association (MSFA), has unveiled a groundbreaking initiative through its latest report, the Mongolia Sustainable Development Goal (SDG) Finance Taxonomy Pilot. This report signals Mongolia’s commitment to aligning financial systems with sustainability goals, broadening the scope of green finance to include social impact investments. Mongolia initially introduced a Green Taxonomy in 2019, focusing on environmentally friendly financial instruments such as renewable energy, low-carbon transport, and sustainable agriculture. However, the scope was limited, leaving gaps in financing essential social sectors. Recognizing this, the Mongolia SDG Finance Taxonomy (2023) was developed to incorporate investments in education, healthcare, digital infrastructure, and accessible urban development. With this, Mongolia emerges as an early adopter of SDG-aligned finance, setting an example for other developing nations.

To test the efficacy of the SDG Finance Taxonomy, Golomt Bank and Khan Bank, two of Mongolia’s leading financial institutions, participated in a pilot study to assess their loan portfolios and identify sustainable financing opportunities. Golomt Bank has outlined a strategic plan to expand its green loan portfolio to 10 percent of its total assets by 2030 while aiming for a 30 percent reduction in portfolio greenhouse gas (GHG) emissions. As of Q3 2023, its green finance portfolio stood at MNT 120.6 billion (USD 35.4 million), representing 2.8 percent of its total lending. Notably, sustainable agriculture (66.4 percent), energy efficiency (24.8 percent), and waste and water management (8.0 percent) emerged as priority investment areas. The bank has also earmarked MNT 1.14 trillion (USD 335 million) for SDG-aligned projects, focusing on affordable infrastructure, green buildings, and energy efficiency.

Khan Bank is spearheading Mongolia’s sustainable finance sector, achieving a 3.7-fold increase in green loans in 2023. With a green loan portfolio of MNT 377.4 billion (USD 111 million) as of Q4 2023, accounting for 3.9 percent of total lending, the bank is exceeding industry benchmarks. The largest green investment areas include energy efficiency (66.7 percent), renewable energy (12.1 percent), and green buildings (8.3 percent). Additionally, the bank has identified MNT 4.84 trillion (USD 1.42 billion) in potential SDG-aligned financing opportunities, particularly in education, healthcare, and sustainable agriculture. Despite the progress, the pilot study identified several barriers to scaling SDG finance, including unclear investment criteria for social impact financing, limited awareness among financial institutions, and inadequate tracking and reporting mechanisms.

To address these, the report suggests a clearer distinction between green and social loans, aligning the SDG Finance Taxonomy with global investor standards such as IFC and ASEAN Green Bond Standards, and developing financial tools for SDG tracking while expanding training programs for financial institutions. The pilot study has identified key investment areas for Mongolia’s SDG-aligned financial ecosystem, including energy efficiency, funding for green buildings, industrial upgrades, energy conservation, water management, investment in sustainable water usage, flood control, and wastewater treatment, sustainable agriculture, financing climate-resilient farming, organic food production, and eco-friendly livestock management, healthcare, expanding medical facilities, upgrading hospital infrastructure, and improving access to quality care, and education, building inclusive schools, enhancing digital learning, and expanding vocational training opportunities.

The Mongolia SDG Finance Taxonomy Pilot marks a significant step towards sustainable and socially responsible investing. By integrating environmental and social goals into its financial system, Mongolia is positioning itself as a leader in inclusive economic development. However, for long-term success, the country must continue to refine its taxonomy framework, strengthen reporting mechanisms, and foster collaboration between financial institutions, government, and investors.