Mongolia taxonomy
The overall objective of the introduced green taxonomy is to develop a nationally agreed classification framework of activities that contribute to climate change mitigation, adaptation, pollution prevention, resource conservation, and livelihood improvement in the context of green finance.
The specific objectives of the taxonomy are to:
- Provide financial institutions, businesses, policy makers, and other market players with a common understanding and approach to identify, develop and finance green projects;
- Support investors’ confidence to finance green projects and mitigate the risk of “greenwashing”;
- Boost green finance flows from various sources including the private sector, international financial institutions, and foreign investors;
- Track private sector investments in green projects, and measure the impact contribution to Mongolia’s green development and climate change related policies and targets;
- Inform and help shape national policies and regulations on green finance that will boost the market development of green opportunities
The green taxonomy is designed to be applied to a wide range of financial instruments including corporate lending, consumer lending, project finance, SME finance, green bonds, equity investment, insurance, credit guarantee, grants, financial advisory and technical assistance, among others.
In addition to its wide scope of application, the taxonomy can also be used by various market players. Below are some of the primary users of the taxonomy and possible applications:
| Market players/stakeholders | Examples of application |
| Financial institutions (e.g banks, NBFIs, Development banks, mortgage corporations, institutional investors, credit guarantee funds, insurance companies) | Use as a guide to i) develop green finance strategies, ii) identify and compare green finance opportunities and pipelines, iii) design green financial product criteria, iv) measure and report on existing and new green finance flows in the portfolio, v) educate and raise awareness among clients. |
| Bond issuers (corporate, municipal, government) | Use as a reference to i) develop eligibility criteria of the projects, ii) assess and select projects/activities to be financed with the green bond, iv) tracking of the proceeds, v) reporting on the allocation of proceeds |
| Industry (corporate, SMEs, start-ups, and other types of project developers) | Use as a guide to identify opportunities to i) integrate “green” elements in the company strategy and operations, ii) review and compare green technology options, iii) develop new green projects, iv) understand the technical/ impact eligibility for green finance options. |
| Verification and standard-setting companies | Use as a reference to conduct pre- and post-issuance impact assessments, define baselines, certify and label green projects, and conduct verifications of the use of proceeds |
| Policy makers | Use as a basis for further policy action in the area of green finance, including standards, labels, incentive mechanisms, and any potential changes to prudential rules. |
The green taxonomy framework is developed in adherence to the following 6 principles:
Principle 1: Contribute to national policies and targets
The taxonomy should contribute to the key environmental targets included in Mongolia’s green development and climate change related policies, strategies, programs
Principle 2: Address environmental challenges
Mongolia’s key environmental challenges should be addressed – i) climate change mitigation and adaptation; ii) pollution; iii) resource conservation iv) livelihood improvement.
Principle 3: Cover high-emitting, key economic sectors
The taxonomy should cover the highest emitting sectors in the economy as well as contribute to the transition of key economic sectors into sustainable ones.
Principle 4: Align with international standards and good practices
In the absence of commonly agreed local standards, the taxonomy should reference international standards and best practices.
Principle 5: Comply with ESG standards
Minimum environmental and social risk management regulations and standards (i.e the Mongolian Sustainable Finance Principles and Sector Guidelines) should be applied to all types of activities included in the taxonomy.
Principle 6: Continues review and development
The taxonomy will require continues review and update based on policy shifts, scientific developments, technological changes, and new industry needs. In alignment with the above mentioned principles, the overall (macro-level) categories proposed in the taxonomy framework are¹:
- Renewable energy;
- Energy efficiency;
- Green buildings;
- Low pollution energy, pollution prevention and control;
- Sustainable water and waste use;
- Sustainable agriculture, land use, forestry, biodiversity conservation & eco-tourism;
- Clean transport.
¹ Detailed description of taxonomy sectors and applied minimum benchmarks used by Mongolian authorities are recommended to be considered by the Government of Armenia during design of its national taxonomy framework. (“Mongolian Green Taxonomy” approved by the Financial Stability Commission of Mongolia).