Mongolia's banking sector has pledged to allocate at least 10% of its loan portfolio to green initiatives, yet the reality is that sustainable financing carries a price tag that remains stubbornly high, according to Temuujin Lkhagvasuren, Chief Executive Officer of the asset management arm of the Development Bank of Mongolia (DBM). In an exclusive dialogue during the seventeenth session of the Conference of the Parties (COP17) to the United Nations Convention to Combat Desertification, held in Ulaanbaatar from August 17 to 28, Lkhagvasuren emphasized that "green does not equal cheap," underscoring that the cost of capital for commercial banks' environmental products continues to hover at elevated levels.

As a state-owned policy institution, the Development Bank of Mongolia is actively working to bridge this funding gap by forging partnerships with international financial organizations and leveraging the nation's sovereign credit rating to design blended finance instruments. The objective is to transform green assets from speculative ventures into genuinely "bankable" opportunities that can attract private capital and drive the country's sustainable transition.

Lkhagvasuren noted that Mongolia's financial landscape is dominated by commercial banks, but the entire industry has made a collective commitment to direct at least one-tenth of all lending toward sustainable finance. As a member of the banking association, DBM has established dedicated funds focused on land restoration and agricultural value chains, supporting everything from pasture management to the full agricultural cycle—encompassing primary producers, processing, export, and logistics across the entire supply chain.

A recurring theme at this year's COP17 was the concept of "asset bankability"—the process of elevating green projects from being perceived by banks and investors as high-risk with unclear returns to meeting financing standards and possessing viable investment value. This philosophy addresses a critical market paradox: capital is not in short supply; rather, what is lacking is a sufficient pipeline of green projects that align with banks' risk-return expectations. Many environmentally focused ventures are deemed "non-bankable" by traditional financial institutions due to their novel technology, extended payback periods, and the difficulty of assessing associated risks. Consequently, making these assets bankable has become an essential step in attracting private investment and accelerating the green transformation.

So what role can DBM play in this process? Lkhagvasuren explained that as a state-owned policy bank, DBM possesses a unique advantage in maintaining direct communication channels with international financial institutions and multilateral development banks. "While commercial banks offer their own green and sustainable financial products, 'green' does not necessarily mean 'cheap'—the funding costs of these offerings remain at levels comparable to traditional commercial products," he stressed. To ensure projects are genuinely affordable and sustainable, blended concessional financing arrangements must be incorporated into the model. DBM's primary mandate is to collaborate with international financial institutions, utilizing Mongolia's sovereign credit to design hybrid products that supplement commercial funding sources and jointly support sustainable finance initiatives.

During the high-level forum, Mongolia announced several institutional development measures, including the formulation of a Sustainable Development Goals financing taxonomy—a green classification standard—and the establishment of a blue bond framework. Lkhagvasuren elaborated that the green taxonomy is essentially a financial-sector-driven initiative, now progressing into its second iteration. Recently, the Financial Regulatory Commission and capital market authorities have authorized the issuance of new instruments such as green bonds and even blue bonds, with water-related projects emerging as a key priority area for the current administration. "As a policy bank, we are constructing the necessary infrastructure and financial mechanisms to support these projects," he stated.

This year's COP17 also introduced a special initiative—the "Business 4 Land" platform—a flagship program under the UNCCD framework designed to align corporate strategies with sustainable land management practices. Lkhagvasuren revealed that DBM has voluntarily joined sub-projects under this initiative, including the "Green Lab," which assists projects in their early conceptual and ideation stages to transform into viable, bankable proposals. "We are currently in the preparatory phase; once projects mature, we will participate in financing as a policy bank," he added.

Regarding collaboration with international bodies, Lkhagvasuren highlighted that since its establishment in 2011, DBM has maintained close working relationships with various international financial institutions, jointly financing and implementing numerous projects. "We are Mongolia's only policy financial institution, and these robust partnerships will continue well into the future," he affirmed.

Looking ahead to Mongolia's green finance development over the next three to five years, Lkhagvasuren expressed cautious optimism. "If you had asked me this question a few years ago, the answer would have been entirely different. Now, the banking sector has proactively committed 10% of its loans to green initiatives, the government is offering tax incentives based on the green taxonomy, and businesses are genuinely beginning to prioritize environmental and sustainability concerns. A few years ago, 'greenwashing' was rampant, but circumstances are shifting—the younger generation of professionals is even more environmentally conscious than we are. We are heading in the right direction," he concluded.

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