FMO, the Dutch entrepreneurial development bank, has announced that it is investing in the first-ever green bond to be issued in Mongolia. The bond will be issued by Khan Bank, the country’s largest commercial financial institution.

FMO has invested $35 million in the five-year bond, with the International Finance Corporation (IFC) investing $15 million and MicroVest contributing $10 million.

The investment will help Khan Bank to grow its climate portfolio by funding projects that support renewable energy, energy efficiency, green buildings, green mobility, and climate-smart agriculture in Mongolia. The subscription will also contribute to improved sustainability of the country’s financial market.

Mongolia is a country facing significant environmental challenges, with air pollution levels in its capital Ulaanbaatar among the highest in the world, due to coal and wood burning in homes and coal power plants.

The country has also experienced significant climate change, with average temperatures increasing higher than the global average, rainfall declining and more extreme climate-driven hazards, including heat waves, droughts and river floods.

FMO’s investment in Khan Bank’s green bond alongside IFC and MicroVest is expected to support Mongolia’s goal to increase green lending from 1.4 percent at present to 10 percent of all banking sector lending by 2030. In addition, the project is expected to help mitigate climate change by avoiding tens of thousands of tons of greenhouse gas emissions annually.

Khan Bank’s CEO, Munkhtuya Rentsenbat, said, “Green finance is a priority for the bank. With the steadfast support of our longstanding partners, IFC, FMO, and MicroVest, Khan Bank, as the largest bank in Mongolia, is proud to issue Mongolia’s first-ever green bond. This transaction marks a significant milestone for our bank and Mongolia’s banking sector to promote green financing and sustainable economy. This investment will enable us to provide long-term loans to our clients and help us diversify our funding sources.”

FMO’s Director Financial Institutions, Marnix Monsfort, added, “We are thrilled to contribute to this first-of-its-kind green bond issuance in Mongolia, once again extending our cooperation with our long-term partner Khan Bank. Through this bond—provided to the largest bank in the country reaching 82 percent of Mongolian households—we hope this paves the way for more sustainable green bond instruments across the country, contributing to significant climate action. Therefore, this transaction is fully aligned with our strategy to accelerate action towards climate change, contributing to SDG 13. FMO looks forward to intensifying our partnership with Khan Bank as they strengthen their green strategy.”

The annual financing required to achieve Mongolia’s green development targets is estimated to be $413 million, with 80 percent from international investors and private sector players. FMO and Khan Bank have had a strong relationship throughout the years, with Khan Bank having been an existing key FMO client since 2009 with a strong performance.