TRENDS IN TAXONOMY

DEVELOPMENT AND LESSONS

FEB 20, 2020
FROM EMERGING MARKETS
 OUR PRESENTERS
Sean Kidney Ms. Nomindari Enkhtur Ms. Oyungerel Munkhbat
CEO of the Climate Bonds Advisor to the Mongolian Project &Partnership Mgr.
Initiative (CBI) Sustainable Finance Initiative Mongolian Sustainable
(MSFA) Finance Association (MSFA)
Presenter Presenter Presenter

Ms. Louise Gardiner

Africa and Green Bonds Coordinator, Sustainable Banking
Network (SBN), IFC

Moderator

Ms. Bolu Wang Mr. Francisco Avendano

Sr. Researcher and Green Project Team Global Focal Point of Green
Lead, Tsinghua University Finance, IFC

Discussant Discussant
Sustainable & Green Taxonomies

Sean Kidney, Climate Bonds Initiative

Background driver

280
ABS
260
Financial corporate
240
Non-financial corporate
220
Development bank
200
Local government
180
Government-backed entity
160
Sovereign
140
Loan
120
100
80
60
USD Billion

40
20
0
2014 2015 2016 2017 2018 2019
Source: Climate Bonds Initiative. Data as of 31st Dec 2019.
Core principles of the EU taxonomy
Who will use the Taxonomy?

Disclosure
The proposed regulation has three mandatory users; obligations

1. Financial market participants

• Investors with more than 500 staff
• Corporations
• Banks

2. EU Member States

The Taxonomy can be used on a voluntary basis by credit institutions and

other issuers, such as local authorities.
EU Taxonomy Approach

A list of economic activities considered environmentally sustainable for investment purposes

Substantially contribute to at Do no significant harm to any

Comply with minimum
least one of the six of the other five
safeguards
environmental objectives as environmental objecties as
defined in the proposed defined in the proposed
Regulation* Regulation*
EU Taxonomy = financial sector reporting on climate change

Already low carbon Likely to be stable • Renewable energy

Very low, zero or net negative emissions and long term • Zero emissions transport
Compatible with net zero CO2 economy by 2050 • Afforestation

Likely to be revised • Building renovation

Contributing to transition regularly and • Electricity generation up to 100g
tightened over CO2/kWh
…to a net zero emissions economy in 2050 • Cars <50g CO2/km
time

• Manufacture of wind turbines

Enabling emission reductions Consistent with • Installing efficient boilers in
those activities buildings
…in the first two types of activities being enabled
EU taxonomy guidance
Buildings
Top 15%, or 30% improvements
Electricity: 100gms Coe/KWh Supply chain / SMEs
Solar, wind, geothermal, hydro
Gas only if with CCS ICT
Storage, transmission

Landuse
Maintaining carbon
Improving carbon
Best practice farming
Transport Zero tailpipe
& very low emissions:
electric, hydrogen
Manufacturing Aluminium
Transitions Steel
Components Concrete
Plastics

Energy efficiency, adaptation

The Taxonomy in practice: Equities
Global taxonomies
Question
and
Answer
Green Taxonomy:
Sharing Mongolia’s Experience
Sustainable Banking Network Webinar Series
Presented by:
Nomindari Enkhtur, Advisor
Oyungerel Munkhbat, Project and Partnership Manager

February 2020
 CONTENT
01 SUSTAINABLE FINANCE IN
MONGOLIA

02 DRIVERS FOR A GREEN TAXONOMY

03 OVERVIEW OF PROCESS &

STAKEHOLDERS

04 TAXONOMY OBJECTIVES & KEY SECTORS

05 MOVING TOWARDS IMPLEMENTATION

06 LESSONS LEARNED &

RECOMMENDATIONS
ABOUT MSFA

Vision:
Mongolia to become the
Regional Sustainable Finance
Knowledge Center

IFC- SBN:
Implementation > Advancing
Chair of Taxonomy working group
Co-chair for the IDA working group
Green Taxonomy Development process and timeline
• Central
• One-on-one meetings
Bank of
with policymakers & Mongolia
• In-depth review of partners directive
relevant documents • Consultation #2
• Coordination with • Finalize draft for banks
• Consultation #1 to send
Tsinghua team • Translate the Green
• Meeting with key Taxonomy statistics
partners • Prepare for approval 2019.10
• Desk review
2019.06 – 2019.10
• Drafting the
Taxonomy 2019.05 – 2019.06
• Initial comments 2019.03 – 2019.05
2018.12 - 2019.03
2019.03 – 2019.10: Mail feedback from partners
2019.01 – 2019.10: Mail feedback from banks

2018.12.11 2019.12.10
Launch Approval
GREEN TAXONOMY: SHARING MONGOLIA’S EXPERIENCE

Drivers of the Green Taxonomy

Environmental Issues Industry Demand Policy

• Climate change: 2.1°C • Investment required to • National Green
• Air pollution: miscarriage achieve NDC (22.7%): Development Policy
is 3.6 times more likely in 11.7 billion USD • NDC
the winter • Lack of definition limits • Monetary Policy of 2019
• Soil pollution: 88% of access to green financing • National program to
Ulaanbaatar soil is • Banks: E&S Capacity develop financial market
contaminated by Businesses: Potential until 2025
bacteria green products • National Sustainable
Finance Roadmap
GREEN TAXONOMY: SHARING MONGOLIA’S EXPERIENCE

Partners

KEY PARTNERS:

TECHNICAL PARTNERS:
APPROVED BY:
A. Regulators B. Private Sector
Financial Stability
1. Ministry of Construction and Urban Development 1. Commercial banks (10)
2. Ministry of Agriculture and Light Industry 2. Industry non-government Commission of
3. Ministry of Energy organizations (18) Mongolia
4. Ministry of Road and Infrastructure 3. Businesses (12) 1. Minister of Finance
5. Ministry of Finance 4. Universities (3) 2. Governor of the Central Bank
6. Energy Regulatory Commission 5. International development of Mongolia
7. Financial Regulatory Commission organizations and project units 3. Head of Financial Regulatory
8. General Agency for Specialized Inspection (8) Commission
9. Mongolian Agency for Standardization and Metrology 6. IFIs (4) 4. CEO of Deposit Income
10.Ulaanbaatar Municipality Office Corporation
11.National Development Agency
12.GCF Focal Point - NDA
GREEN TAXONOMY: SHARING MONGOLIA’S EXPERIENCE

Overview of the Mongolia Green Taxonomy

Overall objective: “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.”

Specific objectives:
1. Provide common understanding and approach to identify, develop, and finance green projects
2. Enhance investors’ confidence and prevent “green washing”
3. Boost green financial flows from various sources
4. Track private sector investments into green projects
5. Inform national policies and strategies on green finance
Users Examples of application
Use as a guide to i) develop green finance strategies, ii) identify/compare green finance opportunities, iii) design green criteria,
Financial institutions
iv) measure and report green finance flows, v) educate clients.
Bond issuers (corporate, Use as a reference to i) develop eligibility criteria of the projects, ii) assess and select green projects/activities, iv) tracking of the
municipal, government) proceeds, v) reporting on the allocation of proceeds.
Industry (corporate, SMEs, start- Use as a guide to identify opportunities to i) develop green strategies, ii) review/compare green technology options, iii) develop
ups etc.) new green projects, iv) understand eligibility for green finance options.
Verification and standard-setting Use as a reference to conduct pre- and post-issuance impact assessments, define baselines, certify and label green projects,
companies and conduct verifications of the use of proceeds.
Use as a basis for further policy action in the area of green finance, including standards, labels, incentive mechanisms, and any
Policy makers
potential changes to prudential rules.
GREEN TAXONOMY: SHARING MONGOLIA’S EXPERIENCE

Overview of the Mongolia Green Taxonomy

Principles

PRINCIPLE 1: PRINCIPLE 2: PRINCIPLE 3: PRINCIPLE 4: PRINCIPLE 5: PRINCIPLE 6:

Contribute to Address key Cover high- Align with Comply with ESG Continuous review
national policies sustainability emitting, key international standards and development
and targets challenges economic sectors standards

i) Climate change Energy i) Broad Mongolian Review and

National Green
mitigation & Agriculture conceptual Sustainable update the
Development
adaptation Waste definitions Finance taxonomy every
Policy
ii) Pollution Construction ii) Regulatory Principles and 2 years in line
prevention Manufacturing and legislative Sector Guidelines with market,
Sustainable
iii) Resource Services approaches technology and
Development
conservation iii) Market-led Banks’ own E&S policy
Vision
iv) Livelihood standards policies developments
improvement iv) Financial
Nationally
institutions’
Determined
definitions
Contributions
GREEN TAXONOMY: SHARING MONGOLIA’S EXPERIENCE

Stock-taking of existing international practices

4 Types of General Approaches (examples) Commonalities & Inconsistencies

Broad conceptual definitions

• Regulators, bankers associations
• DFIs, local financial institutions

Regulatory and legislative approaches

• EU Taxonomy
• China Green Bond Endorsed Project Catalogue
• Bangladesh Bank Green Finance Taxonomy

Market-led standards
• Green Bond Principles (GBP)
• Climate Bonds Initiative Taxonomy

Financial institutions' definitions

• MDBs (IFC Climate Taxonomy, GCF, ADB)
• Local commercial banks, funds
Source: UNEP Inquiry
GREEN TAXONOMY: SHARING MONGOLIA’S EXPERIENCE

Categories of the Mongolia Green Taxonomy

5. Pollution 7. Sustainable
1. Renewable Energy 3. Energy Efficiency prevention & agriculture, land
solar, wind, geothermal, Industrial, utility, public
transmission distribution services, buildings control use, forestry, and
Air and soil eco-tourism

6. Sustainable
2. Low pollution 8. Clean Transport
4. Green Building water and waste
energy Buildings, building products and
public transportation, freight,
Bio-energy, coal alternatives, use private vehicles, infrastructure,
materials, infrastructure water efficiency, treatment &
waste to energy, fuel switch supply chain, ICT
recycling, resource recovery

Level 1: Level 2: Sub-

Level 3: Technologies Example
Category category
1.1.1 Energy generation
Level 1: the main taxonomy categories 1.1 Wind
facilities
Onshore wind generation facilities for power
Centralised and distributed solar power
Level 2: sector/sub-sector scope of green 1.2.1 Electricity generation
facilities
facilities, including concentrated solar power,
photovoltaic power
activities for investment purpose 1.2.2 Small-scale distributed
Small-scale portable solar home systems, mini
grid and other types of stand alone systems to
Level 3: typical examples and technologies to 1.Clean 1.2 Solar solar systems
power small communities
energy
demonstrate what is eligible under each 1.2.3 Solar thermal application
Facilities for application and generation of
solar thermal energy, including solar water
category facilities heating and other thermal applications of
solar power in all sectors
Facilities for electricity generation and
1.3.1 Heat & power generation
1.3 Geothermal thermal applications of geothermal power in
facilities
all sectors
GREEN TAXONOMY: SHARING MONGOLIA’S EXPERIENCE

Categories of the Mongolia Green Taxonomy

Examples of activities/eligible assets included in the taxonomy

specific to Mongolia’s context:

Sub-categories Sustainability issue addressed

Clean heating appliances air pollution, livelihood
Clean ger area fenced plot air pollution, soil pollution, livelihood,
waste
Eco-sanitation toilets soil pollution, water pollution, waste
Sustainable pasture climate mitigation, climate adaptation,
management resource conservation
Sustainable cashmere climate mitigation, climate adaptation,
production resource conservation
GREEN TAXONOMY: SHARING MONGOLIA’S EXPERIENCE

Key Challenges in the Process

1 2 3
Technical Strategic Stakeholder

• Limited ESG data, • Setting priorities • No super financial

no baseline and boundaries regulator
(development vs. (ownership issue)
• Lack of industry sustainability goals,
standards social vs. • Building
environmental) consensus between
• Limited availability of various agencies and
technologies and • Keeping balance interest groups
terminologies between international
standards and • Limited awareness
• Defining adaptation Mongolia’s unique and capacity
activities needs
MOVING TOWARDS IMPLEMENTATION
• PILOT PHASE: Based on the feedback and results of the pilot phase, make necessary
amendments to the taxonomy and develop implementation guidelines

• INDUSTRY-GUIDELINES: Develop industry-specific guidelines in support of the taxonomy (e.g.

energy efficient housing criteria)

• TOOLS & TRAINING: Develop impact assessment (e.g. GHG quantification) tools for financial
institutions and organize technical trainings for various stakeholders

• VERIFICATION CAPACITY: Build local green project verification capacity

• PILOT PROJECTS: Implement pilot projects with the application of the taxonomy (e.g. green
affordable housing, sustainable cashmere production)

• GREEN FINANCE POLICIES: Support the development of green finance policies in support of
the implementation of the taxonomy
GREEN TAXONOMY: SHARING MONGOLIA’S EXPERIENCE

Recommended step-by-step approach for SBN members

Phase 1: Phase 2: Phase 3: Phase 4:
Preparation Development Launch & Pilot Implementation

• Map key stakeholders • Review and • Approve and • Continuously

and partners benchmark existing launch taxonomy update taxonomy
• Identify most suitable best practices • Support taxonomy • Develop
leading/coordinating • Set sustainability with green finance implementation
entity and approving objectives and policies (e.g. guidelines/tools
body principles disclosure • Develop green
• Set up • Develop initial requirements) financial products
committees/working framework • Set up reporting & & pilot projects
groups • Refine framework tracking systems • Analyze data,
• Develop action plan, through consultation • Collect feedback measure progress,
timeline, and budget and feedback from stakeholders set targets

Capacity building, awareness & stakeholder buy-in

GREEN TAXONOMY: SHARING MONGOLIA’S EXPERIENCE

Question
And
Answer
Discussant
Ms. Bolu Wang

Sr. Researcher and Green Project

Team Lead
Discussant
Mr. Francisco Avendano

Global Focal Point of Green Finance,

IFC