Green loans and climate risk

Climate change is not merely an environmental issue; it has become an economic factor that directly affects the stability of the banking sector and is therefore receiving increased attention from international banking and financial supervisory and regulatory authorities. The Bank of Mongolia, recognizing the potential risks to the financial sector from climate change, conducted a detailed assessment and analysis in 2025. It also joined the Network for Greening the Financial System (NGFS), which comprises 157 central banks and financial supervisory authorities from over 90 countries around the world.

Since 2013, the Bank of Mongolia, in collaboration with the banking and financial sectors, has played a leading role in developing Mongolia’s sustainable finance framework and promoting awareness of sustainable development and green finance. As a result of these efforts, green assets accounted for 5.9 percent of the banking sector’s total loan portfolio as of the third quarter of 2026. Despite this progress, strengthening the capacity to identify and prevent greenwashing remains essential to mitigating reputational risks and maintaining confidence in green finance. Equally important is enhancing the banking sector’s resilience to climate-related risks to safeguard financial stability.

Accordingly, environmental, social and governance (ESG) risk management in the banking sector should be strengthened and aligned with the best international practices. This requires more rigorous assessments of the banking sector’s exposure and vulnerability to climate-related risks, supported by reliable data to facilitate effective risk management. Collecting high-quality, granular data and establishing and maintaining relevant databases at both the Bank of Mongolia and individual banks will enable more robust risk assessments, better-targeted policy measures, and more evidence-based policies to improve access to green finance.

The Bank of Mongolia’s Medium-Term Strategy (2026–2030) prioritizes sustainable development, the advancement of green finance, and the establishment of a supportive green finance ecosystem. Specifically, the strategy aims to:

• Complete the necessary preparations to integrate climate-related financial risks into supervisory regulations and reporting requirements.
• Develop the market infrastructure and enabling legal framework needed to facilitate the expansion of green finance through market-based mechanisms.
• Strengthen institutional capacity, advance work on international standards, and deepen international cooperation.

• Continue cooperation with the International Finance Corporation (IFC) to strengthen climate-related financial risk management. This will include enhancing the regulatory framework for sustainable finance, building financial institutions’ capacity, and developing methodologies and guidance for assessing ESG risks.
• Establish a regular policy dialogue and consultation mechanism with commercial banks to identify their perspectives, initiatives, and challenges, and incorporate relevant feedback into the policy development process.
• Establish a multi-stakeholder cooperation framework to develop an integrated database of climate-related financial risk information. This will involve collaboration with a broad range of public- and private-sector stakeholders, including relevant government agencies, research institutions, and professional associations.
• Deepen international cooperation through active engagement with the NGFS, including participation in its relevant working groups.

Incorporating climate-related risks into financial stability assessments and the supervisory framework will strengthen the resilience of the banking sector. Establishing an integrated database of climate-related financial risks and improving risk assessment methodologies in cooperation with the International Finance Corporation (IFC) will enable more precise measurement of physical and transition risks. This will provide a basis for the early identification of risks to banks’ loan portfolios and collateral, the conduct of stress tests, and the design of targeted policy measures.

Regular policy dialogue with banks will help ensure that sustainable finance policies and regulations reflect actual market needs and create conditions for green finance to expand through market mechanisms, supported by measurement, reporting, and verification.

By joining the NGFS, the Bank of Mongolia will be able to adopt international good practices and methodologies in a timely manner and strengthen its institutional and human resource capacity to manage climate-related risks.