11 January 2019: A review of Mongolia’s financial system identifies barriers to scaling up sustainable finance, also noting environmental, social and governance (ESG) factors and due diligence requirements already instituted by Mongolian banks. The “roadmap” report was developed by: the UN Environment Programme’s (UNEP) Inquiry into the Design of a Sustainable Financial System; the International Finance Corporation (IFC); and the Mongolian Sustainable Finance Association (MSFA).
The report titled, ‘National Sustainable Finance Roadmap of Mongolia: Unlocking Mongolia’s Potential to Become a Sustainable Finance Knowledge Centre in the Region,’ defines sustainable finance as taking into account “the risks and impacts on the environment and communities when private and public entities make investment, lending or any other financing decisions.” The authors note that a key tenet of sustainable finance is “investing in initiatives that drive positive environmental, social and economic development.”
Specific objectives of the roadmap contained in the report are to:
- Integrate sustainability in financing and investment policies and frameworks taking into account climate, and ESG considerations;
- Reorient and increase green investment flows towards the creation of a low-carbon, climate-resilient and circular economy; and
- Enhance the understanding and cooperation between financial and real sector players, creating an enabling environment that looks at sustainable finance as “the new business-as-usual.”
A key tenet of sustainable finance is investing in initiatives that drive positive environmental, social and economic development.
The document notes policies and frameworks that contribute to these objectives, such as the country’s nationally determined contribution (NDC) under the Paris Agreement on climate change, its Sustainable Development Vision 2030, which was endorsed by Parliament in 2016, and the National Green Development Policy, adopted in 2014, the objectives of which include reducing greenhouse gas (GHG) emissions, increasing the share of renewable energy, optimizing pricing policies, reducing building heat losses and reducing solid waste streams.
The roadmap notes a range of challenges that hinder sustainable finance, including those that affect all transactions (“generic”) and those that relate particularly to the sustainability aspect of investment. Generic barriers include high interest rates and lack of access to finance, whereas barriers to sustainable finance are due to several intersecting factors, such as the nexus between lack of clarity on what constitutes a “green” project, which hinders internal budgeting, accounting and performance measurement, and complicates the measuring of environmental risks.
The roadmap proposes 12 activities, clustered into short-, medium-, and long-term reforms and organized into three pillars: environmental and social risk management, green financing flows and an enabling environment. The actions, summarized in a table, designate national-level activity leads, and identify potential implementation partners such as the IFC, Green Climate Fund (GCF) and Global Green Growth Institute (GGGI).
Commenting on the report’s launch, Naidalaa Badrakh, CEO of the MSFA, said Mongolia’s sustainable finance efforts have been largely driven by the private sector until recently. However, the roadmap provided in this report “guides the expansion of the initiative into the wider financial system, including nonbanks, insurance and capital markets.” [Publication: National Sustainable Finance Roadmap of Mongolia: Unlocking Mongolia’s Potential to Become a Sustainable Finance Knowledge Centre in the Region] [UNEP Press Release] [SDG Knowledge Hub Story on UNECE’s Review of Mongolia’s Progress on SDGs]