Mongolia’s Financial Revolution: Bridging Green and Social Investments for Vision 2050

The Mongolia Sustainable Development Goal Finance Taxonomy Pilot, led by ADB, UNDP, and MSFA, expands green finance to include social sectors like healthcare and education, aligning Mongolia’s financial practices with SDG goals and Vision 2050. This initiative positions Mongolia as a leader in sustainable finance, fostering investments in low-carbon, climate-resilient, and inclusive projects.

The Mongolia Sustainable Development Goal (SDG) Finance Taxonomy Pilot, spearheaded by the Asian Development Bank (ADB), the United Nations Development Programme (UNDP), and the Mongolian Sustainable Finance Association (MSFA), represents a transformative step in integrating sustainability into Mongolia’s financial ecosystem. Building on the success of the 2019 Green Taxonomy, which catalyzed green investments in sectors such as renewable energy and waste management, this initiative expands the framework to include social sectors such as healthcare, education, and inclusive infrastructure. The enhanced taxonomy aims to align Mongolia’s financial practices with its Vision 2050, a long-term development strategy to create a low-carbon, climate-resilient, and socially inclusive economy. As one of the first adopters of such a comprehensive framework, Mongolia positions itself as a regional leader in sustainable finance.

Unveiling Opportunities with the SDG Taxonomy Pilot

The pilot project involved testing the SDG Finance Taxonomy within two major Mongolian banks: Golomt Bank and Khan Bank. Both institutions showcased significant potential to align their loan portfolios with sustainability goals. Golomt Bank, a trailblazer in sustainable finance, has been actively integrating the taxonomy into its operations. The bank’s green loan portfolio, which accounts for 2.8% of its total loans, focuses on areas such as sustainable agriculture, energy efficiency, and waste management. Innovative products like green housing loans and eco-car loans underscore its commitment to fostering environmentally friendly practices. Khan Bank, Mongolia’s largest commercial bank, has demonstrated its leadership by issuing the country’s first green bonds and dramatically expanding its green loan portfolio. Accounting for 3.9% of its total loans, the bank's portfolio prioritizes renewable energy, green construction, and sustainable agricultural projects.

A Comprehensive Framework for Green and Social Investments

The SDG Finance Taxonomy encompasses 12 sectors and 51 subcategories, creating a robust framework for sustainable investments. Eligible activities range from renewable energy generation and water management to sustainable agriculture and healthcare development. Each category is linked to measurable SDG targets, with core and additional indicators to track progress. For example, in healthcare, projects that improve access to medical services, enhance infrastructure, or develop innovative health technologies are prioritized. Similarly, in education, the taxonomy supports investments in inclusive facilities and digital learning platforms. By defining clear eligibility criteria and impact metrics, the taxonomy enables financial institutions to identify projects that deliver measurable environmental and social benefits.

Addressing Challenges and Refining the Taxonomy

While the taxonomy pilot demonstrated the feasibility of integrating sustainability into Mongolia’s financial system, it also highlighted areas for improvement. Key recommendations include differentiating green and social categories more explicitly and ensuring alignment with international standards such as those of the International Capital Market Association. Simplifying documentation and clarifying technical criteria for eligible projects such as thresholds for synthetic fertilizers and hybrid vehicles are also necessary for broader adoption. The pilot underscored the importance of establishing robust verification processes to maintain investor confidence. These refinements are essential as Mongolia prepares for the taxonomy’s mandatory implementation in 2025, allowing stakeholders a one-year window for feedback and revisions.

Toward a Resilient and Inclusive Financial Future

The potential impact of the SDG Finance Taxonomy is transformative. Mongolia requires significant private sector investment, estimated at an additional 18% of GDP annually, to achieve its Vision 2050 goals. By facilitating targeted investments, the taxonomy addresses critical gaps in social development and environmental sustainability. In education, it supports building inclusive schools and expanding vocational training, while in healthcare, it prioritizes accessible medical facilities and advanced technologies. In water management and agriculture, the framework encourages projects that enhance resource efficiency and climate resilience, addressing pressing challenges like water scarcity and soil degradation.

This initiative also sets a precedent for systemic change in Mongolia’s financial sector. Embedding sustainability into banking practices, it not only aligns the financial ecosystem with global SDG commitments but also establishes Mongolia as a leader among emerging economies in sustainable finance. Local banks play a crucial role in mobilizing capital for impactful projects, supported by public-private partnerships and international expertise.

As the SDG Finance Taxonomy transitions from pilot to policy, it represents more than just a financial framework; it is a vision for an inclusive and sustainable future. The taxonomy empowers financial institutions to align their operations with national and global sustainability goals, ensuring that economic growth is equitable and environmentally responsible. With its structured approach to project identification, impact measurement, and reporting, the taxonomy serves as a critical tool for fostering a resilient, low-carbon, and socially inclusive economy. By addressing gaps in the existing Green Taxonomy and setting a roadmap for the future, Mongolia stands poised to achieve significant progress in its sustainable development journey, offering a model for other nations to follow.