This chapter assesses Mongolia’s policy framework for sustainable infrastructure planning, delivery and financing. It examines national strategic planning frameworks, sectoral conditions in energy, transport and industry and mechanisms for sustainable finance mobilisation. The chapter analyses infrastructure investment needs, financing gaps and the roles of public investment, state-owned enterprises and private sector participation. It explores Mongolia’s climate commitments, including its Nationally Determined Contribution (NDC), and the evolving policy landscape for low-carbon and climate-resilient infrastructure. Particular attention is given to coal dependence, mining-led growth, clean energy potential, urbanisation pressures and climate vulnerability. The chapter also reviews governance capacity, infrastructure appraisal tools, resilience planning and the integration of environmental, social and gender considerations in infrastructure decision-making.
Accelerating Sustainable Infrastructure Investments
Abstract
This chapter assesses Mongolia’s national policy framework for sustainable infrastructure planning, delivery and financing. It consolidates analytical work undertaken by the OECD and its partners under the Sustainable Infrastructure Programme in Asia (SIPA) that targets or covers Mongolia and complements this with a literature review and desk research. The chapter begins with an introduction that discusses the main national sustainable infrastructure challenges, setting the context for SIPA’s work in the country. The assessment of national infrastructure policies is then structured according to the Programme’s pillars, highlighting key achievements and remaining misalignments in (i) the national strategic and planning framework; (ii) sectoral conditions for sustainable infrastructure project development; and (iii) sustainable finance mobilisation.
Mongolia’s development model and geospatial context make infrastructure both a central enabler of long-term prosperity and a source of heightened vulnerability. The country’s landlocked geography, vast territory, low population density and harsh climatic conditions raise the costs of infrastructure development and maintenance and underscore the need for selectiveness, quality and resilience in planning. At the same time, Mongolia’s growth remains closely tied to foreign trade dominated by emission-intensive coal and mining products, leaving the economy exposed to external shocks and to shifts in demand – above all from China. As trade patterns evolve and climate risks intensify, infrastructure choices will be pivotal in either reinforcing dependence on carbon-intensive pathways or enabling a more diversified, resilient and inclusive growth model.
Against this backdrop, Mongolia is at a pivotal juncture for steering infrastructure investment toward low-carbon and climate-resilient outcomes. The scale of planned investment is significant, with major initiatives spanning energy, transport and industry, while financing needs linked to Mongolia’s climate and development objectives remain large. Under a status quo trajectory, there is a risk that substantial investment could perpetuate fossil fuel dependence, particularly through continued coal-based power and export-oriented mining and logistics infrastructure, which would undermine long-term sustainability and raise the prospect of stranded assets. Conversely, the expansion of renewable generation and sustainable mobility, strengthened resilience standards, and more robust appraisal of projects’ environmental and social impacts could deliver strong economic benefits while reducing climate and pollution-related risks.
Mongolia has taken important steps to strengthen the policy foundations for sustainable infrastructure. Sustainability objectives are increasingly mainstreamed across key national strategies and climate commitments, including recent advances in planning for mitigation and adaptation. Mongolia has articulated a long-term plan for the country’s development through its Vision 2050 strategy and has also developed a strong enabling framework for sustainable finance, including national taxonomies and green finance standards, and has begun expanding green financial instruments, creating new avenues to finance climate-aligned infrastructure. These developments provide a basis for accelerating investment in cleaner and more resilient infrastructure systems.
Nonetheless, critical implementation challenges persist. A core misalignment remains between climate objectives and a development trajectory that continues to prioritise coal-based infrastructure and mining-linked expansion. The absence of a formal net-zero target and a fully developed Long-Term Low-Emission Development Strategy (LT-LEDS), combined with limited institutional capacity in key areas, constrains coherent long-term planning and the mobilisation of diversified finance. Resilience considerations are not yet systematically embedded in infrastructure standards and project preparation, and Strategic Environmental Assessments remain rarely applied despite their potential to strengthen policy coherence and decision-making. At the same time, Mongolia’s high cost of capital and underdeveloped capital markets limit access to long-term finance, while the pipeline of bankable green projects remains constrained. Ensuring that increasing private participation supports environmental integrity and social outcomes will also require strengthened Responsible Business Conduct frameworks and more consistent integration of gender considerations in planning and evaluation.
Looking ahead, Mongolia’s efforts to modernise and expand infrastructure can reinforce wider national priorities, including energy security, competitiveness, economic diversification, improved governance and reduced vulnerability to climate-related disruptions, if sustainability is mainstreamed across the infrastructure cycle and supported by credible incentives. Achieving this transition will require strategic choices on where and how to deploy scarce public resources and institutional capacity, while building public support for reforms and ensuring just transition outcomes in coal-dependent regions. The priority actions below draw on the analysis presented in this chapter.
Launch a robust LT-LEDS process that articulates ambitious decarbonisation targets, identifies net-zero-consistent policies, and provides a basis for sectoral transition pathways in energy, transport and mining.
Use this process to convene a national dialogue on reducing coal dependence while maximising economic and social outcomes, including through subnational economic analysis to support just transition planning and public support for reform.
Strengthen resilience planning by embedding risk assessment and scenario-planning tools into infrastructure decision-making and updating standards and regulations so that asset design, construction and operation reflect evolving climate risks; reinforce inter-agency co-ordination and technical capacity to translate plans into delivery.
Review and strengthen the regulatory framework and institutional capacity for Strategic Environmental Assessment and Environmental Impact Assessment, and use integrated appraisal methodologies such as SAVi to develop sustainability-based project screening criteria across energy, transport and industrial sectors.
Strengthen incentives for clean energy and low-carbon investment by reviewing and reforming fossil fuel subsidies as part of ongoing energy sector reforms, improving energy pricing signals, and advancing toward carbon budgets and carbon pricing instruments that better capture the external costs of GHG emissions.
Accelerate sustainable mobility in Ulaanbaatar by developing a high-service mass public transport network adapted to local climatic conditions, integrating land-use and transport planning, and enabling electrification through parallel investment in clean energy and supporting infrastructure.
Enhance sustainable regional freight planning by combining connectivity upgrades at strategic cross-border points with measures to improve supply chain efficiency, digital trade facilitation, cleaner fuels, and climate-resilient infrastructure design and maintenance.
Strengthen the enabling environment for sustainable and green finance by operationalising taxonomies (including MRV guidance), scaling green bonds and de-risking mechanisms, and deepening capital markets to expand long-term financing options for climate-resilient infrastructure.
Mobilise SOEs and public procurement to steer investment toward green and resilient infrastructure through strengthened green selection criteria, improved SOE governance, and the systematic integration of Responsible Business Conduct expectations in procurement and investment decisions.
Embed gender considerations into infrastructure planning and evaluation frameworks through strengthened indicators and data, more inclusive consultation practices, and result-based reporting across sectoral ministries.
Mongolia faces an urgent need for more and better infrastructure to support inclusive and sustainable growth. The literature on Mongolia’s state of infrastructure highlights its poor condition and the negative effects that have led to the suboptimal development of economic activities, including in the agriculture (Mongolia’s largest employing sector) and mining sectors (the main contributor to national GDP) (World Bank, 2020[1]). Mongolia’s geospatial constraints have important implications for the development of infrastructure. Its landlocked situation, large size (1 564 116 km2 of land area) and low density of population (2 people per sqm of land area in 2022) (World Bank, 2025[2]), compounded by a harsh climate, drive high costs of infrastructure development and maintenance, requiring selectiveness in planning and financing as well as emphasis on quality and resilience.
Given its small domestic market and landlocked geography, Mongolia’s economic growth will continue to depend heavily on foreign trade, currently dominated by highly emission-intensive coal and mining products. Massive investments in cleaner energy infrastructure, including production and distribution, are required to decarbonise the economy, one of the most GHG-intensive in the world, while enhancing reliable and stable access to energy for firms and households. More sustainable transport systems and climate-resilient road and railway networks will also be essential to maintain trade connectivity, reduce economic disruptions, and support regional development.
This section sets the stage by exploring Mongolia’s sustainable infrastructure needs and examining economic and environmental challenges, looking at how these are shaping national infrastructure development priorities. The remainder of this chapter evaluates the national policy framework for planning, delivering and financing the infrastructure needed for achieving resilient and sustainable economic growth. This evaluation is structured around the three key pillars of the SIPA framework.
3.1.1. Meeting Mongolia’s infrastructure requirements for economic and sustainability goals requires diversifying sources of financing and prioritising sustainable projects
Recent government plans highlight the scale of infrastructure spending requirements in Mongolia for current economic development plans. The Public Investment Program for 2021-2025, which is about to conclude, required USD 2.1 billion of annual investments in infrastructure and heavy industry projects, with primary sources of financing coming from the Development Bank of Mongolia and private sector partnerships, concessions and public-private partnerships, foreign loans and aids, and state budget (UNDP, 2022[3]). More recently, the government outlined a list of 14 priority “mega projects” in energy, transport and industry. These mega projects aim at accelerating national economic development and require USD 15 to 30 billion USD of investment in total. Given their size, and despite the government’s commitment to advance swiftly on their realisation, developing these 14 projects will likely span decades.
Analyses from UNDP and the government provide estimates of the additional infrastructure investment needed to achieve sustainability objectives, highlighting the scale of financing required to realise climate and SDG ambitions. According to UNDP’s 2022 analysis, achieving national targets under SDG-9 (industry, innovation and infrastructure) will require an additional spending of USD 1.7 billion annually between 2026 and 2030 to stay on track for 2030 commitments (UNDP, 2022[4]). According to the government, the implementation of the NDC 3.0 submitted to the UNFCCC in September 2025 (see sub-section 3.2.1) will require a total investment of USD 14.84 billion, i.e. nearly 1.5 billion per year between 2025 and 2035. Of this, USD 9.64 billion are required for mitigation, with the bulk of the envisaged spending to be directed at large infrastructure investments in the energy and transport sectors (Government of Mongolia, 2025[5]).
Closing Mongolia’s sustainable infrastructure gap will require addressing a double challenge. The first challenge is to mobilise more financing and investment for infrastructure in general, and the second is to prioritise projects that are compatible with environmental and SDG goals. Success will depend on Mongolia’s ability to overcome barriers in planning and governance frameworks, regulatory investment framework and business climate, as well as capital market development, access to international concessional financing mechanisms and mobilisation of SOEs and the private sector.
Currently, most infrastructure financing comes from national public sources. From 2014 to 2024, general government spending indicates that Mongolia’s capital expenditures, a proxy for public investments in infrastructure, amounted to USD 11.5 billion in total, i.e. an annual USD 1.05 billion, or 7.3% of national GDP on average over the period (Figure 3.1). Even though scarcity of data on private finance prevents to provide a complete picture, according to the World Bank’s data on Private Participation in Infrastructure (PPI), Mongolia received an annual average of USD 30 million of infrastructure investments from the domestic and international private sector during the 2012-2024 period, directed at projects in wind and solar energy. In addition, according to the OECD DAC database on climate-related development finance, in 2014-2023 Mongolia received a committed USD 105 million per year on average for financing projects in water supply and sanitation, transport and storage, energy, and industry, mining and construction. About half of this financing came from multilateral development banks, while the rest mainly came from OECD DAC members.
GDP in billion constant 2015 USD (left axis) and government capital expenditure as a percentage of GDP (right axis)
Source: Author calculations based on World Bank (2025[2]).
The SOE sector is also a key financing source for infrastructure development. There are no consolidated data on the amounts of these investments, but in 2024, Erdenes Tavan Tolgoi, the largest mining SOE and leading coal producer in Mongolia, presented investment plans amounting to USD 5.2 billion and spanning coal extraction, coal processing and transport infrastructure (Global Business Reports, 2024[6]). This figure illustrates the role that the SOE sector plays in financing infrastructure in Mongolia, as well as the importance of its mobilisation for aligning large infrastructure investments with sustainability objectives.
In 2021-2022, the UNDP executed a mapping of SDG-aligned investment opportunity areas and identified gaps in priority sectors for sustainable development, where enhanced policy approaches could help mobilise private sector investments. SDG-aligned investment opportunity areas were identified according to a set of criteria (i.e. defining adequate government commitment and support, enabling investment framework and strong business models). The UNDP also identified “white spaces”, i.e. areas with potential but with limited private sector momentum or limited government support. This work identifies three investment opportunity areas, and seven white spaces related to clean energy and other sustainable infrastructure (Table 3.1) (UNDP, 2022[7]). Of note, across the six sectors considered, energy and other infrastructure are the two sectors representing the highest number of white spaces, highlighting the magnitude of the needs for more investments, but also the difficulties in reaching conditions for unlocking private sector financing potential (UNDP, 2022[7]).
The UNDP analysis as well as the data presented above highlight the need for developing national policies that can better enable the attraction of private financing for critical infrastructure development, and the need to align infrastructure financing with sustainability criteria. International efforts are ongoing to also accelerate the supply of sustainable financing going into critical infrastructure development, including in areas where business models are weak. The success of these efforts, however, also requires policy action aimed at enhancing national investment climates and promoting innovative financing models. The rest of this introductory section further delves into the national context for sustainable infrastructure development in Mongolia, taking a closer look at economic and environmental challenges.
3.1.2. Sustainable infrastructure investments offer an opportunity for Mongolia’s long-term economic diversification and competitiveness
Mongolia’s economy has grown substantially in the past 20 years, delivering significant benefits to its citizens. Real GDP has grown at an average rate of 6.3% per year since 2004, significantly higher than the global average of 2.9% (World Bank, 2024[8]). Thanks in part to this rapid economic growth, there has been significant progress towards achieving development goals. The proportion of people living below the poverty line declined from 36.3% in 1995 to 27.1% in 2022 (National Statistics Office of Mongolia, 2024[9]). Meanwhile, life expectancy has increased by around seven years, and maternal mortality has fallen steeply (World Bank, 2024[8]). The country was reclassified by the World Bank from a lower-income to an upper-middle income country in 2024.
The model that has supported this growth, however, makes Mongolia particularly vulnerable to external shocks and to shifts in demand from its trading partners, above all China. Unlike comparable emerging economies in East Asia, such as the ASEAN 5, which are predominantly service-led, Mongolia’s growth has been driven by the mining industry, which is closely tied to demand from China (World Bank, 2024[8]). Mining products, mostly coal briquettes and copper ore, regularly account for over three quarters of Mongolia’s exports by value (Figure 3.2), and over three quarters of total exports are bound for China (Observatory of Economic Complexity, 2024[10]). Dependence on the mining sector has only grown since the mining boom began in 2014, and the prominence of other export products, including textiles (chiefly cashmere) and agricultural goods, has diminished (World Bank, 2023[11]). Such extreme dependence on the mining sector and a single market leaves Mongolia’s economy vulnerable to fluctuating commodity prices which can be mitigated over the medium to long term by economic diversification and infrastructure development (World Bank, 2020[1]). As Mongolia’s major trading partners, especially China, are expected to reduce their coal imports in the medium term (World Bank, 2024[8]), the need for economic diversification and transition away from reliance on coal mining will increase. Infrastructure will play a key role in impeding or, on the contrary, enabling the necessary economic transition.
Export revenue in USD billion (left axis) and exports from non-resource sectors as a percentage of total exports (also left axis), 2018-2023
Infrastructure in support of energy security, defined as stability and reliability of supply, will be critical moving forward, given national demographics and industrial development plans. Energy infrastructure suffers from decades of underinvestment. Chronic electricity shortages and an overreliance on imported energy severely impact daily life and economic productivity. An ageing and poor‑quality electricity grid results in extensive losses in transmission and distribution. Frequent power cuts not only slow industrial growth but also disrupt public services, leaving many people without reliable electricity (World Energy Council, 2025[12]). Despite being a net exporter of energy, Mongolia is a net importer of electricity and around a 10th of the population does not have access to electricity. Electricity demand from the industrial sector surged by 129% between 2010 and 2021 and is expected to continue rising sharply, with projected consumption in 2030 likely to exceed Mongolia’s total electricity demand recorded in 2020 (OECD, 2025[13]).
More and better investments into transport infrastructure are needed to drive productivity gains and sustainable trade development. In spite of progress, such as the development of corridors resulting in the integration of the national road system in the Asian Highway Network, transport infrastructure continues to drive high freight costs and limits integration into global value chains (ITF, 2025[14]). Limited connectivity remains a barrier to economic development; in 2023, 34% of the rural population did not have access to all-season roads (Asian Transport Outlook, 2024[15]). The transport sector remains highly emissive, and more robust measures are needed to tackle air pollution and improve safety outcomes (ADB, 2022[16]; Asian Transport Outlook, 2024[15]). Transport systems are also increasingly exposed to the impacts of climate change. Between 2000 and 2020, the number of hazards affecting Mongolia’s road network doubled (Government of Mongolia, 2024[17]), while potential road and railway damages from natural hazards could reach USD 13.4 million/year – three times the Asia-Pacific average in terms of GDP share (Asian Transport Outlook, 2024[18]). Yet, despite these growing impacts, climate resilience is insufficiently considered in transport infrastructure planning, design, and management, leaving assets and connectivity increasingly vulnerable to climate hazards.
As infrastructure development gains momentum and new investment is mobilised, there is a strategic window to embed low-carbon and climate-resilient technologies and design principles. Upgrading heating systems, expanding renewable energy capacity, investing in electrified or low-emission transport corridors, and strengthening standards and requirements for climate-resilient infrastructure design and management could deliver strong outcomes both in terms of economic growth and sustainability goals. A similar opportunity lies in industrial sectors. As mining activities are expected to expand and shift toward higher value-added segments of the value chain (OECD, 2025[13]), the government can take action and integrate sustainable and low-carbon technologies and approaches into industrial planning.
3.1.3. A significant transformation of Mongolia’s current infrastructure base is needed to make it fit for tackling national environmental and sustainability challenges
Mongolia is committed to climate and Sustainable Development Goals (SDGs). Recognising their importance for the prosperity of its citizens, the government is making efforts to deliver national economic development plans aligning with these objectives. The government has made ambitious commitments to GHG emission reduction under the Paris Agreement: in its latest Nationally Determined Contribution (NDC), the country has set a conditional emission reduction target of 52.8% by 2035, compared to the projected level of emissions under a business as usual scenario for 2010 (Government of Mongolia, 2025[5]). Climate adaptation has also gained momentum in recent years, most notably with the release of the National Adaptation Plan to Climate Change in spring 2025. The government’s commitment to the SDG is highlighted in national development plans, which make several references to SDG objectives on climate and gender (UNDP, 2022[3]).
Mongolia’s infrastructure presents both a critical barrier and a key opportunity in the country’s efforts to reduce greenhouse gas emissions and build climate resilience. Much of the existing infrastructure – particularly in the energy and transport sectors – was built to maximise capacity rather than ensure operational efficiency, environmental sustainability, or resilience to climate hazards, and remains heavily dependent on coal and diesel (OECD, 2019[19]). Aging district heating systems, inefficient transmission networks, and limited urban public transport constrain Mongolia’s ability to curb emissions from energy use, which accounts for roughly half of the country’s total emissions (Figure 3.3).
GHG emissions in kilotons of CO2e
Note: Excludes land use, land-use change and forestry (LULUCF). IPPU = industrial processes and product use.
Delivering on economic growth objectives while aligning with climate commitments will require a significant transformation of Mongolia’s infrastructure sector. Mongolia’s infrastructure, especially in the energy sector, is responsible for the high carbon-intensity of the national economy. Although in absolute terms the country contributes only a small share to global greenhouse gas (GHG) emissions, and in spite of significant improvement between the early 1990s and the mid-2010s, its economy remains one of the most GHG-intensive in the world (Figure 3.4). Per capita emissions reached 23.8 tonnes in 2022, which is nearly four times the global average of 6.3 tonnes and well above the East Asia and Pacific average of 8.0 (World Resources Institute, 2025[21]). This high emission intensity mainly stems from the energy sector’s reliance on coal, as discussed in sub-section 3.2.3., compounded with high energy consumption levels driven by ageing, inefficient infrastructure (EBRD, 2023[22]).
Kiloton of CO2e per million USD of GDP, 1990-2022
Mongolia’s high exposure to climate change places its infrastructure – and by extension its economy and communities – at significant risk. Average temperatures increased by more than 2°C between 1940 and 2015, far above the global average (Government of Mongolia, 2018[23]), and climate-related hazards such as droughts, floods, sandstorms and extreme temperatures, compounded by declining rainfall, have become more frequent and severe, increasingly threatening economic activity, essential services, and Mongolia’s unique ecosystems (WB; ADB, 2021[24]). Mongolia is also highly vulnerable to “dzud”, severe winter episodes of extreme cold and heavy snowfall, which regularly damage critical infrastructure, disrupt connectivity, and limit access to essential services, with serious development implications (World Bank, 2024[8]). Overall, the number of climate-related disasters has already increased by 68% over the past 15 years and is projected to grow by another 23–60% by 2050 under all warming scenarios (CFE-DM, 2022[25]; USAID, 2022[26]).
Infrastructure development needs to consider also land degradation and biodiversity loss, which are growing challenges due to, amongst other things, climate change, overgrazing, land-use changes and unsustainable agricultural practices. Poorly planned and managed infrastructure can have direct and indirect impacts on biodiversity and ecosystem services, with the type, scale, and duration of these impacts varying across infrastructure types and depending on the environment in which they are located (CBD, 2018[27]). Approximately 77% of Mongolian land is classified as degraded, contributing to water scarcity, reduced water quality and biodiversity decline (UNDP, 2024[28]). Promoting sustainable pasture management, reforestation along vulnerable water basins, and restoration of riparian forests are key to preserving biodiversity and increasing water quality and groundwater resources (UNDP, 2024[28]). As part of its response to these challenges, Mongolia is committed to the Kunming-Montreal Global Biodiversity Framework and has produced a series of biodiversity strategies such as the National Biodiversity Action Plan. Mainstreaming climate and biodiversity risks into infrastructure planning and development will help deliver on such commitments.
Water scarcity is emerging as a major constraint on sustainable development in Mongolia, with implications for infrastructure development plans. Water demand in Mongolia is steadily increasing and is expected to surpass the available supply by 2040. Simultaneously, the country’s water resources are facing mounting stress due to aquifer depletion, climate change, and pollution (OECD/AWC, 2025[29]). As the country’s water resources are unevenly distributed, with over 80% located in the north, scarcity is likely to intensify in areas with high water usage such as urban centres like Ulaanbaatar, industrial zones including the Southern Gobi Desert, regions used for livestock grazing, and locations earmarked for future agricultural, industrial, and energy development (OECD/AWC, 2025[29]). These pressures are further exacerbated by limited wastewater treatment infrastructure and weak co-ordination in water resource management, particularly at the river basin level. Water scarcity has two broad implications for infrastructure development: first, the need to sustainably plan and develop infrastructure ensuring reliable access to clean water where needed, and second, the need for a cross-sectoral approach in the development and management of other types of infrastructure (e.g. energy, transport) with strong implications for the water sector (see sections 3.3.1 and 3.3.3).
In a context of fast-paced urbanisation, the rapid development of quality urban infrastructure is fundamental to ensure proper access to essential public services for urban dwellers and offers an opportunity to enhance climate resilience and mitigate pollution risks. Mongolia’s rapid urbanisation saw nomadic and rural communities relocate to urban and peri-urban settlements straining local infrastructure capacity, and contributing to both water pollution, and extreme levels of urban air pollution (WB; ADB, 2021[24]). Only 20% of Mongolians lived in urban areas in 1950 but, today, the urban population represents 70% of the country’s 3.3 million population, while the average urbanisation ratio in Asia is 50% (ADB, 2022[30]). Around 54% of Ulaanbaatar’s peri-urban population reside in ger (yurt) areas characterised by unplanned settlements of low- and medium-income households with unpaved roads, poor facilities, and higher-than-average exposure and vulnerability to climate hazards such as flooding (UN Habitat, 2025[31]). Recognising the urgency, the government is putting great emphasis on infrastructure projects in Ulaanbaatar city, which concentrates a lot of these problems.
Infrastructure is also central to enhancing national health outcomes. Informal heating systems are common in areas contributing to poor air quality; for instance, fine particulate matter (PM2.5) levels of 687 micrograms per cubic metre were recorded in Ulaanbaatar which exceeds the WHO-recommended levels by a multiple of 27 (UNICEF, 2025[32]). Less than 25% of the population have access to central or district heating making them reliant upon coal fire boilers and stoves which contributes to poor air quality (OECD, 2019[19]). Similarly, both urbanisation and the increasing number of informal settlements contribute to water pollution add pressure on scarce water supplies (WB; ADB, 2021[24]). In a study of 3582 groundwater wells across Mongolia, the WHO found that 35% did not meet national standards for clean drinking water and that unacceptable quantities of lead, arsenic, chromium and copper were common (UNICEF, 2023[33]). Moreover, in rural areas, limited road connectivity hampers access to healthcare services, leaving communities particularly vulnerable during extreme weather events or public health emergencies.
The transition to an infrastructure approach aligned on environmental and sustainable goals offers a strong opportunity for enhanced gender outcomes. OECD research finds strong interlinkages between the energy transition and the advancement of gender equality, if proper policies are in place, by reducing energy access inequalities and enhanced economic and job opportunities (OECD, 2024[34]). Equal access to transport services is also a pillar of gender equality (World Bank, 2025[35]). Despite national commitments to gender equality, reflected in Vision 2050 and alignment of some of the objectives contained in its ten-year strategy with the SDGs, gender integration in infrastructure strategic planning and evaluation frameworks remains inconsistent. Environmental and social impact assessments rarely include robust gender analysis, and data on women’s participation in public consultations, especially in rural areas, is limited (IISD, 2022[36]). Embedding gender into Mongolia’s infrastructure reforms, notably in energy and transport, will help ensure strong alignment with the principles of a just and inclusive transition. It will, however, require specific tools and approaches.
Mongolia’s strategic framework recognises infrastructure as central to long-term growth, connectivity and inclusion, with major priorities set out in Vision 2050, the New Recovery Policy, the Government Action Plan 2024–2028 and NDC 3.0. The creation of the Ministry of Economy and Development has strengthened central co-ordination, while ongoing work on a Long-Term Low-Emission Development Strategy, strategic foresight, the National Adaptation Plan and pilot use of SAVi provide useful foundations for more sustainable infrastructure planning. However, coal-dependent energy plans, weak climate-resilience integration, limited use of SEA, and gaps in gender-responsive appraisal risk undermining the credibility and sustainability of the infrastructure agenda. To build on this progress, Mongolia could:
Develop the LT-LEDS as the main framework for aligning infrastructure with a net-zero transition. Use the LT-LEDS process to set a clear net-zero target, model pathways for power, heating, transport, industry and mining, and assess the economic and social impacts of different transition scenarios.
Reconcile coal expansion plans with climate and renewable energy objectives. Review planned coal-fired capacity, including the Tavan Tolgoi CHP project, against NDC 3.0 and renewable energy targets, and use inclusive dialogue with coal-dependent regions, industry and workers to design credible just transition measures.
Strengthen infrastructure governance and project pipeline management. Build on the MED’s co-ordinating role by creating a clearer central function for feasibility studies and project pipeline consolidation, reducing politically driven prioritisation, and applying the OECD Infrastructure Governance Indicators to assess procurement, transparency, appraisal and accountability gaps.
Apply sustainability appraisal tools more systematically to major infrastructure projects. Expand the use of SEA in strategic plans and strengthen EIA implementation for mega-projects in energy, transport, mining, water and industry. Build on the SAVi pilot for Ulaanbaatar’s public bus electrification to integrate lifecycle costs, emissions, air pollution, health, fuel savings and social benefits into project appraisal.
Embed climate resilience into infrastructure planning, procurement and PPP frameworks. Use the National Adaptation Plan to introduce climate risk assessments, resilience standards and lifecycle cost requirements for roads, rail, energy, water and urban infrastructure, ensuring domestically financed projects meet standards comparable to internationally financed ones.
Integrate gender considerations into infrastructure appraisal and monitoring. Apply gender analysis in the State Investment Programme and project selection, require sex-disaggregated consultation and outcome data, and use the National Committee on Gender and sectoral committees to review gender integration in transport, energy, construction, water and mega-projects.
Aligning infrastructure investments with economic, social and environmental sustainability outcomes requires that the national strategic framework provides clear qualitative and quantitative objectives for sustainable infrastructure development. A strong national strategic planning framework includes (i) robust governance and strategic policy frameworks, i.e., the processes, systems, and practices through which infrastructure decisions are made, as well as strategic plans, policies and programmes driving infrastructure planning; (ii) long-term planning tools backed by robust risk assessments, scenario-building and foresight capabilities; (iii) sustainability and climate commitments that are credible, i.e. backed by development plans addressing the main obstacles to a net-zero, sustainable growth model; (iv) specific tools, methods and capabilities for mainstreaming sustainability, resilience and gender considerations into infrastructure planning and project-level appraisals.
Mongolia’s ability to transition away from its current reliance on fossil fuels and emission-intensive, climate-vulnerable infrastructure will depend on the strength and coherence of its national strategic framework for sustainable infrastructure development. This is not unique to Mongolia: the scale of transformation required to achieve a low-carbon, climate-resilient economy demands strong political commitment, supported by robust national planning and co-ordination across all levels of government, with active participation from civil society and the private sector. In Mongolia’s case, this condition is particularly vital given the predominance of coal as both a primary energy source and export commodity.
3.2.1. National governance and strategic framework for sustainable infrastructure development
Governance for infrastructure planning and budgeting
The Ministry of Economy and Development (MED) has gained a prominent role in policy and infrastructure planning in recent years. Created in January 2022, the MED co-ordinates with sectoral ministries to identify and consolidate public investment projects, ensuring that those align with national development plans. It also collaborates closely with the Ministry of Finance (MOF), which is in charge of the broader national financial and budget planning. Its extended responsibilities include improving the social and economic potential of Mongolia in a sustainable and accessible way by providing integrated methodology and managing for developing, planning and implementing long-, medium- and short-term development policies, which are submitted for adoption to the Parliament of Mongolia. The Ministry’s Integrated Policy and Planning Department is responsible for developing national long‑, medium‑ and short-term policy plans for economic sustainable development, ensuring cross-sectoral co-ordination. The national infrastructure budgeting process is led by the MED and is closely linked with the policy planning process.
The MED plays a key role in identifying and prioritising strategic projects for financing, yet the lack of a centralised function for funding feasibility studies and consolidating project pipelines can hinder a holistic view enabling efficient strategic planning (OECD/AWC, 2025[29]). Policy plans from sectoral ministries and provincial governors are consolidated for Cabinet and Parliamentary approval and infrastructure projects qualify for consideration if they are part of local or sectoral development strategies (OECD/AWC, 2025[29]). Projects requiring investments over USD 9 million must comply with specific criteria, including the completion of a preliminary feasibility study as mandated by the Law on Budget, and sectoral ministries are tasked with preparing detailed feasibility reports to secure funding (OECD/AWC, 2025[29]). However, competition for limited financial resources and relative political power can influence project prioritisation (OECD/AWC, 2025[29]).
Weaknesses in, and the instability of, the broader national governance framework likely affect Mongolia’s capacity to deliver infrastructure plans effectively. In 2019, an OECD study found that the national governance framework for infrastructure delivery suffered from limitations in institutional capacity for long-term planning, includinga weak accountability and transparency mechanisms (OECD, 2019[19]). Frequent institutional reforms and high staff turnover were also identified as impediments to a robust capacity for long-term infrastructure planning (OECD, 2019[19]). Corruption remains a key challenge, with Mongolia scoring 33 out of 100 on the Corruption Perception Index in 2024 (Transparency International, 2025[37]). Recent World Bank analysis shows that Mongolia performs below peer countries including Armenia, Colombia, Estonia and Malaysia on indicators of governance effectiveness, and points at recent political instability and resulting lack of predictability in the policy framework which are eroding economic actors’ confidence (World Bank, 2024[38]). At the time that this report is drafted, the MED is being restructured, and the effects of this reorganisation on its mandate and on the infrastructure budgeting and planning processes in general is unknown.
Given the critical importance of public governance for infrastructure development, Mongolia could consider using the OECD’s Infrastructure Governance Indicators to carry out a systematic assessment of its framework in place and identify solutions for improvement. The quality of public governance is one of the main challenges faced by OECD countries in delivering infrastructure development plans (Ruiz Rivadeneira, Dekyi and Cruz, 2023[39]). The OECD Infrastructure Governance Indicators (IGIs) provide a comprehensive framework for assessment and comparison. Organised around key governance dimensions such as strategic planning, project appraisal, sustainability, procurement and transparency, they can support evidence-based policy dialogue and institutional reform. While some relevant dimensions such as long-term strategic planning and project-level appraisal tools are analysed in this report, others, such as procurement and transparency, are not covered and could be analysed in the future through an IGI exercise. Box 3.2 below details the IGI exercise led by the OECD in countries of Southeast Asia under SIPA.
Under SIPA, the OECD held a series of consultations and capacity-building sessions with national planning agencies in Indonesia, the Philippines, and Thailand, who responded to a pilot survey based on the OECD IGIs. Findings from the survey highlight strong foundations in long-term planning and sustainability commitments across the three SIPA countries as well as identify areas for improvement.
Indonesia has strong long-term planning frameworks and integrates climate considerations but lacks project-specific benchmarks and independent project review.
The Philippines systematically assesses affordability and uses detailed benchmarks and climate data but lacks a framework to evaluate procurement against green and social objectives.
Thailand promotes green procurement and environmental standards but does not require early-stage stakeholder consultation or independent review of major projects.
The national strategic framework for sustainable infrastructure development
Infrastructure plays a prominent role in Mongolia’s strategic framework for development. This is well reflected in key policy documents such as Vision 2050, and the recent Government Action Plan 2024-2028, which identifies 14 priority mega-projects identified as key for accelerating economic growth (see Box 3.3 below). These frameworks position infrastructure as a key lever for economic growth, connectivity, and social inclusion, aiming to modernise the country’s transport and energy systems, expand access to basic services, and diversify the economy beyond its heavy reliance on mining and herding.
Infrastructure development is also tied to Mongolia’s climate mitigation goals. The Nationally Determined Contribution (NDC) 3.0 outlines energy, transport, and urban systems infrastructure improvements as critical for achieving GHG emission reduction. A number of strategic plans and policies for infrastructure development that have recently been developed have strong sustainability dimensions (Table 3.2). However, climate adaptation and resilience goals are not yet systematically mainstreamed in infrastructure planning (OECD, forthcoming[41]).
Mongolia’s long-term strategies and plans aim to close the infrastructure gap and provide directions towards greener economies and stronger environmental outcomes; however, these could further articulate the strong linkages between infrastructure and sustainability. While Vision 2050 acknowledges climate change as a key challenge, the strategy’s focus on infrastructure leans heavily toward economic connectivity and industrial competitiveness, with limited concrete mechanisms to align infrastructure development with climate mitigation and adaptation. The 2021 New Recovery Policy presents opportunities to fast-track modernisation and job creation, but the policy is only partially aligned with Mongolia’s climate commitments. Emission reduction and climate adaptation are not central pillars of this plan, and without clear environmental safeguards or low-carbon and resilience-focused investment criteria, there is a risk of locking in high-emission and climate-vulnerable infrastructure. The policy does promote public-private partnerships and digital infrastructure expansion, which could be leveraged to support greener infrastructure planning and climate-smart development if properly integrated into implementation frameworks.
Conversely, the government needs to continue working on linking climate and sustainability policies plans with economic development and infrastructure planning documents through joint or co-ordinated investment plans. While Mongolia’s first Nationally Determined Contribution (NDC) lacked alignment with broader national infrastructure policies, detailed financing strategies and institutional co-ordination mechanisms, the NDC 3.0 submitted in September 2025 provides a good view of the financing needs and recognises the importance of capacity-building for co-ordinated policy action across sectors (Government of Mongolia, 2025[5]). The document also announces an implementation plan to follow, which, if well-designed, can support stronger linkages between climate and national infrastructure development plans. Implementation of NDC objectives, however, will likely remain heavily dependent on external technical and financial assistance. Other high-level environment and climate-related strategies, such as the National Adaptation Plan (NAP, 2025), provide an important enabling framework but remain underutilised in practical infrastructure decision-making (Banzragch, 2025[42]).
Mongolia’s energy sector, which is particularly critical to the climate transition, currently lacks a dedicated long-term sectoral development strategy. The previous strategy, State Energy Sector Policy 2015-2030, outlined objectives to move the sector to market-based practices, reform tariffs to attract investment, and expand renewables to enhance energy efficiency and reduce environmental impacts including GHG emissions, but it has since been repealed without a replacement.
In addition, no dedicated national strategy exists for decarbonising the heating sector, despite its significant contribution to both GHG emissions and air pollution, especially in urban areas. The absence of a dedicated heating strategy limits the country’s ability to tackle emissions holistically across the energy sector. The mega-projects discussed below, and section 3.2.3., further discuss the continuation of investments in the coal sector, which remains a contradiction in Mongolia’s sustainable infrastructure agenda.
Despite the presence of relevant objectives and some initiatives related to the transport sector (see section 3.3.2), there is no clear strategic plan for ensuring the sector’s low-carbon or climate-resilient development. Some climate mitigation components appear within broader frameworks such as Vision 2050 and the New Recovery Policy, which identify goals including urban public transport development, improved vehicle efficiency, and logistics corridor upgrades. However, these priorities are not underpinned by a dedicated transport policy that sets sector-specific emissions targets or timelines or that integrates resilience considerations into planning and investment decisions. The NDC 3.0 includes transport-related mitigation actions, such as promoting electric vehicles and enhancing fuel quality, but these remain high-level and without an integrated national roadmap or investment strategy. While rail development receives strategic attention, particularly in support of mining exports, this is framed primarily in terms of economic and geopolitical objectives rather than climate impact. In the absence of a dedicated sustainable transport strategy, mitigation and adaptation actions in the sector risk remaining marginal and unco-ordinated.
Mongolia also has no dedicated national roadmap for decarbonising the industrial or mining sectors, despite their central role in the country’s economy and emissions profile. While Vision 2050 and the New Recovery Policy highlight economic diversification and value-added mineral processing, they do not include detailed emissions reduction pathways or sector-specific sustainability criteria. The mining sector, a key driver of emissions and infrastructure expansion, operates without a co-ordinated low-carbon strategy or regulatory framework that incentivises clean technologies, energy efficiency, or emissions monitoring. The lack of binding environmental and climate performance standards for industrial and extractive activities limits Mongolia’s ability to align sector growth with its national climate commitments.
Mongolia’s mega projects
The Action Programme for 2024-2028 outlines 14 priority mega projects, requiring USD 15 to 30 billion dollars of investment (Reuters, 2025[43]). These projects are aimed at accelerating economic growth and supporting the goals described under the four pillars of the Plan: regional development policy, human development policy, economic policy and human rights. As regards their nature and expected economic and social impact, these 14 mega projects can be categorised into (i) transport and trade connectivity projects; (ii) projects to expand industrial domestic production and economic diversification; (iii) projects targeting access and affordability of energy; and (iv) social infrastructure projects (Box 3.3).
The list includes two transport and trade connectivity projects focusing on cross-border trade infrastructure. New railway and cargo transshipment terminals will be constructed at the Gashuunsukhait-Gantsmod, Hangi-Mandal, and Shiveekhuren-Sekhee border crossings. These facilities are expected to significantly expand Mongolia’s export capacity and increase the share of coal exports transported by rail. The improvements will also enhance passenger and cargo traffic efficiency and provide better access and services at border crossings. Complementing this effort, the Erentsav-Choibalsan-Bichigt vertical railway will be built to facilitate trade and reduce transport costs.
The plan includes six industrial projects. These include a joint Mongolian-French uranium project targeting annual production of around 2 500 tonnes of uranium. Coal-chemical and coke-chemical complexes will process millions of tons of coal, producing hard coke and electricity, with surplus products exported. The programme also includes the development of copper and steel processing complexes to meet domestic demand and boost exports, an oil refinery to reduce import dependence, and a gold refinery to retain value-added processing within Mongolia.
Four energy infrastructure projects have been announced. A 450 MW coal-fired thermal power plant at Tavan Tolgoi will be constructed to strengthen domestic electricity supply, including for major mining regions. In the western region, the Erdeneburen 90 MW hydroelectric plant is intended to improve the reliability of electricity supply and reduce reliance on imports Additionally, a 310 MW hydroelectric plant on the Egiin River is expected to contribute to stabilising the national energy system.
The social infrastructure component includes water infrastructure projects. Water security is addressed through the construction of water pipelines from the Orkhon-Ongi and Kherlen-Toonot rivers to supply multiple regions (aimags).
Source: (State Great Khural, 2024[44]).
According to recent communications by the government, five out of the fourteen mega projects have entered the implementation phase. These include: the Cross-Border Railway Connections at strategic border points, most notably the rail links and reload terminals at the Gashuunsukhait-Gantsmod checkpoint; the Mongolian Oil Refinery; the Mongolia-France Joint Uranium Project; the Erdeneburen Hydropower Plant; and the blue coal facility within the Petro-Chemical and Coke-Chemical Industrial Complex initiative.
From a sustainability perspective, these mega projects present risks, both in their nature and their implementation. The construction of new coal-fired thermal plants stands in stark contrast with stated objectives to accelerate the development of renewables, while this and other projects run the risk of generating significant emissions (in the mining and metals sector), affect biodiversity, or result in local social conflicts, if not properly managed. Robust project-level sustainability and climate-resilience assessments, as discussed in section 3.2.4, will help ensure that these and future infrastructure projects prioritised by the government effectively align with the environmental and climate objectives highlighted in policy documents. Although an evaluation and assessment methodology was developed with the assistance of the Japan International Cooperation Agency (JICA), this methodology currently lacks indicators relative to environment protection and climate goals. The development of a LT-LEDS can provide a significant contribution to the strengthening of Mongolia’s strategic framework for sustainable infrastructure development by exploring different scenarios and assessing their economic and social impacts and offering modelling-backed views of how infrastructure can support a net-zero transition.
3.2.2. Long-term planning tools: modelling, scenario-building and foresight capabilities
Planning the transition to a net-zero, climate-resilient economy and developing the supporting infrastructure requires novel planning tools capable of adopting longer-term views than usual, integrating higher degrees of uncertainties and allowing for flexibility in envisaging multiple scenarios. Adopting such planning tools and approaches helps to align infrastructure investments with greenhouse gas (GHG) emission reduction targets defined under national climate commitments, as well as other environmental and sustainability goals such as the reduction of pollution, enhanced resilience to climate hazards and other external shocks, and biodiversity conservation. Long-term planning tools such as Long-Term Low Emission Development Strategies and foresight approaches helps to equip infrastructure planning teams with methods for anticipating long-term trends, identifying solutions and developing pathways that can inform decision-making processes.
Developing Mongolia’s LT-LEDS
Though the government has taken initial steps to integrate long-term climate considerations into national development planning, formal and strong net-zero ambitions and plans are needed to effectively steer a sustainable economic transition. Unlike Kazakhstan and Uzbekistan, Mongolia has not yet formally adopted a net-zero emissions target, although the President announced the country’s intention to develop a net zero strategy to 2050 at the COP27 (UNDP, 2024[45]). A clear net-zero target, backed by strong political commitment and a well-developed strategy, can send strong signals to investors and development partners. Such efforts not only increase transparency and credibility but also provide a critical planning framework for infrastructure investment, energy transition, and climate finance mobilisation.
Mongolia has taken steps towards the development of a LT-LEDS, laying-out foundations for future work in this area. In 2023-2024, the Ministry of Economy and Development worked with the support of EBRD and the 2050 Pathway Platform to develop a Long-Term Vision (LTV), a document laying-out directions and paving the way to the development of a fully-fledged LT-LEDS. The UNDP has also been supporting this effort by raising awareness and building capabilities among national stakeholders for developing an LT-LEDS.
Under the Sustainable Infrastructure Programme in Asia, IDDRI has been working with national think tanks and national experts to build knowledge and capabilities on modelling and scenario-building tools supporting LT-LEDS development. This support was based on the experience of the Deep Decarbonisation Pathway (DDP) initiative.
The government would benefit from a robust LT-LEDS exercise aligning with the approach suggested by the OECD to foster Policy Coherence for Sustainable Development (PCSD). The government is currently discussing a project to develop a LT-LEDS with support from the World Bank. Committing to a robust LT-LEDS development process is instrumental for developing evidence-based national low-carbon targets and providing strong and credible signals to sustainable investors. The PCSD is an approach to “systematically integrate economic, social and environmental dimensions of sustainable development at all stages of domestic and international policy making”, adjusted and applicable to the development and implementation of LT-LEDS (Aguilar Jaber et al., 2020[46]). This approach revolves around eight building blocks against which can be assessed the quality of the process leading to the strategy, the document itself, and the strategy implementation (Table 3.3).
Building blocks of the OECD approach and corresponding enabling factors at each stage of the LT-LEDS
Source: Author’s elaboration based on Aguilar Jaber et al., (2020[46]).
The government could benefit significantly from examining the recent experiences of other countries that have undertaken similar processes, such as the case of Chile, or the case of Kazakhstan, which can offer relevant insights and lessons for Mongolia’s own transition. Kazakhstan faces a number of challenges similar to those facing Mongolia, not least its reliance on the coal sector, but also some of its geographical and climate constraints. In particular, the experience of Kazakhstan shows that failing to gain early-on support from categories of stakeholders likely to oppose the net-zero objective (e.g. stakeholders from coal mining regions, representatives of coal industry) can lead to sub-par outcomes (see Chapter 2). Linked to this, a lack of clear targets signalling a strong commitment to reaching the stated net-zero objective can prevent an LT-LEDS from being considered as a credible plan, meaning that the strategy may fall short of providing the incentives needed for stakeholders to plan investments into sustainable and low-carbon infrastructure.
Strategic foresight capabilities
Strategic foresight can be a powerful tool for planning infrastructure development. It consists of a structured and systemic approach to anticipating and shaping the future, which is particularly useful in today’s interconnected global landscape where disruptions in one area can trigger unexpected local impacts. With the UNDP’s support, Mongolia recently used a foresight approach in the planning of the country’s green transition (UNDP, 2025[47]). The process included workshops and interviews with policymakers, businesses, youth, civil society, and academics (UNDP, 2025[48]). It led to the identification of critical, cross-cutting challenges to long-term sustainable growth as well as policy priorities and immediate actions to be included in the national plan for the green transition. In addition, insights and recommendations from this exercise are currently being used to inform policy discussions on Mongolia’s LT-LEDS, COP27 commitments, and green finance priorities (UNDP, 2025[47]).
The experience from the application of the tool, including in Indonesia and the Philippines, shows its further potential to support planning (Box 3.4). The foresight emphasises the importance of examining potential future disruptions and their interactions with social, technological, economic, environmental, political, and geopolitical factors to support effective decision-making and long-term planning under uncertainty. By fostering resilience, strategic foresight enables civil servants to identify and act on emerging opportunities and mitigate risks. A key element of the process involves challenging deeply held assumptions about the future, which helps shift thinking from a single predicted outcome to preparing for multiple possible futures.
The OECD has developed a Strategic Foresight Toolkit for Resilient Public Policy to support global and national efforts in designing future-ready net-zero transition strategies amid high uncertainty. This toolkit can help governments, including Mongolia’s, and organisations stress-test their strategies against 25 plausible disruptions identified for the 2030-2050 period.
Foresight exercises offer several benefits for long-term resilience planning. They create a space for reflection on complex, interconnected long-term issues, which is critical for developing robust and resilient economic strategies. They bring together stakeholders from various government branches, helping to break down organisational silos and foster collaboration. They enable participants to explore the interplay of global megatrends such as climate change, technological innovation, and geopolitical shifts, while promoting upskilling and cross-domain knowledge sharing. A learning-by-doing approach not only generates actionable recommendations but also equips participants with lasting strategic foresight skills to enhance anticipatory policymaking.
Under SIPA, the OECD’s Foresight Toolkit for Resilient Public Policy, which was developed to support more adaptive, systems-oriented policymaking, was piloted in infrastructure-focused exercises with the Department of Development (formerly National Economic and Development Authority, NEDA) in the Philippines (2022) and Bappenas in Indonesia (2023).
Both workshops applied participatory scenario development and stress-testing to explore how the countries’ draft infrastructure strategies (Philippine Development Plan 2023-2028; Indonesia’s Medium-Term National Development Plan, or RPJMN, 2025-2029) could perform under an array of conditions shaped by climate change, technological shifts, urbanisation and fiscal constraints. The exercises gathered participants from a variety of ministries and non-government representatives to stress-test the draft strategies against a variety of disruptions to identify vulnerabilities and refine investment priorities.
In Indonesia, the process informed adjustments to national infrastructure priorities in the context of the RPJMN, emphasising flexibility, cross-sectoral co-ordination and nature-based solutions. In the Philippines, it supported a more integrated view of climate risks and long-term infrastructure resilience, generating interest within the government to develop targets on investment in resilient infrastructure.
Source: (OECD, 2025[49]).
Moving forward, Mongolia could benefit from embedding strategic foresight methodologies into long-term infrastructure planning to ensure policies remain robust and resilient across diverse future scenarios. To this end, the government could leverage approaches such as the OECD Strategic Foresight Toolkit for Resilient Public Policy. Such approach could help identify and involve national experts in areas critical for stress-testing existing policies and building future scenarios. It should be grounded in data, as much as possible. Forming a strategic foresight unit within the policy planning department, with a clear mandate and adequate resources, could be a successful approach.
3.2.3. Credible national climate mitigation commitments
Mongolia’s credibility in delivering on its sustainability and climate mitigation commitments hinges on its ability to implement concrete, measurable actions in its most emissions-intensive sectors, particularly the energy sector, where coal remains dominant. Despite ambitious targets outlined in Mongolia’s NDC, coal-fired power plants continue to account for the vast majority of electricity generation, and coal is the main fuel source for district heating in urban areas.
Coal remains the dominant source of electricity generation in Mongolia, accounting for 84% of total output in 2021. As electricity demand continues to rise – driven largely by industrial growth – this reliance on coal has led to a sharp increase in emissions from the power sector, with CO₂ emissions from coal-fired electricity and heat generation more than doubling from 6.6 Mt in 2000 to 14.5 Mt in 2021 (Figure 3.5). If future electricity needs are met primarily through additional coal-fired capacity, the carbon intensity of Mongolia’s power sector will continue to grow, making it increasingly difficult to curb overall greenhouse gas emissions and meet national decarbonisation targets. This trajectory also has implications for Scope 2 emissions associated with industrial electricity and heat consumption.
Note: Panel B displays combined heat and electricity CO2 emissions in Mongolia, reflecting the fact that all coal-fired power generation in Mongolia comes from Combined Heat and Power Plants (CHPs)
Source: OECD calculations based on IEA (2022[50]) and OECD (2025[13]).
Despite its high potential for wind and solar energy production and presence of renewable energy targets in national development plans, Mongolia’s electricity sector is currently poised for significant coal-fired capacity expansion, which will make it hard to reap sustainable benefits from electrification in the future. Mongolia has the tenth largest pipeline of new coal power capacity in the world (Global Energy Monitor, 2025[51]). According to projections by the Ministry of Energy, the country plans to add 2,090 MW of new coal-fired power capacity by 2030, including major projects such as the 450 MW Tavan Tolgoi Combined Heat and Power (CHP) plant (Figure 3.6a). In contrast, only 585 MW of renewable capacity is expected to be added over the same period. If these additions proceed as planned, coal-fired CHP will account for an even larger share of total generation capacity in 2030 than it did in 2023, rising from 83% to 89% (Figure 3.6b). These figures underscore the central role that coal is set to continue playing in Mongolia’s power sector under current plans.
(a) MW, (b) as a percentage of total installed capacity
Source: (OECD, 2025[13]).
The Mongolian government’s climate commitments and targets on renewable energy stand in stark contrast to the country’s current energy development trajectory. The absence of a clear coal phase-out plan not only hampers the development of clean energy, but also imposes substantial financial, social, and environmental costs. Anecdotal evidence suggests that national stakeholders are aware of the difficulties of attracting financing for coal-based projects, as Mongolia’s expansion plans largely depend on a limited number of bilateral and international financial partners, most of which have either ceased or are in the process of ceasing investments in coal (OECD, 2025[13]). Ambiguous and conflicting objectives in clean energy development plans are further found in Mongolia’s ongoing discussions underpinning the development of a national hydrogen strategy, as stakeholders weigh support for coal-based hydrogen production with carbon capture alongside ambitions to develop renewable hydrogen. Mongolia’s policies for clean energy development are further discussed in section 3.3.1.
While Mongolia shares coal transition difficulties with other emerging economies, its challenge is particularly acute and requires robust planning and inclusive national dialogue at both national and local levels. The IEA has assessed Mongolia to be one of the six countries in the world where coal phase-out is likely to be the most challenging (IEA, 2022[52]). The OECD has underscored the need for tailored strategies and toolkits to support such transitions (OECD, 2022[53]). Designing just transition plans, dialoguing with the most affected communities, and building public support will be critical moving forward. The LT-LEDS process described in section 3.2.2. can and should serve as a cornerstone of the transition, as it enables broad stakeholder engagement in scenario development and the assessment of the socio-economic impacts of coal phase-out strategies. Complementary measures outlined in section 3.3.1 of this report can further support the shift toward more sustainable energy systems aligned with economic and climate objectives, while further work and analysis to better understand and plan the contribution of renewable energy infrastructure development to regional economic development would be beneficia (GIZ, 2024[54]).
3.2.4. Policy-level and asset-level sustainability evaluation tools integrating environmental and social considerations
The adoption and effective use of policy- and project-level sustainability evaluation tools and methodologies by national agencies can enhance greatly a country’s capabilities for planning and delivering sustainable infrastructure. These tools may require additional human capacity, time and financing for policy and project development and implementation. However, they can bring important benefits such as better understanding of environmental and climate risks, the development of more resilient solutions and more robust decision-making for long-term infrastructure planning. This is particularly important when applied to the infrastructure projects, which typically represent very high costs over long periods of time. They can also facilitate access to sustainable finance.
At policy level, one of the main tools that have emerged are Strategic Environmental Assessments (SEAs). SEAs, while mentioned in Mongolia’s Environmental Impact Assessment Law, are rarely applied (World Bank, 2024[55]). SEAs encompass a set of analytical and participatory methods designed to integrate environmental considerations into the development of policies, plans and programmes (OECD, 2006[56]). Their core objectives include embedding sustainability goals into strategic decision-making, collecting and analysing relevant data, including stakeholder input, for informed choices, assessing the potential environmental and health impacts of proposed actions, and establishing conditions for environmentally responsible implementation (OECD, 2006[56]).
Successful implementation of Strategic Environmental Assessment (SEA) depends on a combination of enabling framework conditions and practical implementation measures. At the institutional level, this includes strong government commitment, adequate funding, and the integration of SEA requirements into sectoral planning guidelines. An effective incentive system within the regulatory and administrative framework is also essential to encourage compliance and uptake. Equally important is the active engagement of stakeholders and the dissemination of knowledge to ensure transparency and inclusiveness throughout the process (OECD, 2006[56]).
On the operational side, SEA should be embedded early in the planning cycle to influence strategic decisions from the outset. Flexibility in methodology is crucial, particularly when data availability is limited, and the use of external expertise can enhance the quality and credibility of assessments. To ensure that SEA findings lead to meaningful improvements, results must be systematically used to refine plans and programmes. Finally, robust monitoring and long-term evaluation mechanisms are necessary to track the effectiveness of SEA and support adaptive management over time (OECD, 2006[56]).
Mongolia could consider much wider use of SEAs since their benefits are multifaceted. They support the pursuit of environmentally sound, climate-resilient, and sustainable development while enhancing the quality and coherence of policy, planning, and programming processes. By identifying environmental and climate risks early, SEA help avoid costly mistakes, thereby saving time and resources. Moreover, they promote transparency and multi-stakeholder participation through public consultations, strengthen governance, and foster public trust in decision-making. In transboundary contexts, SEAs also facilitate co-operation and alignment across jurisdictions (UNDP and Regional Environment Center, n.d.[57]).
At project level, evaluation tools integrating sustainability and climate resilience criteria can significantly improve the strategic planning of sustainable infrastructure. Evaluation tools can be used for project sustainability appraisal, including: i) classic cost-benefit analysis using environmental sustainability and climate resilience criteria; ii) environmental impact assessments (EIAs); iii) the Sustainable Asset Valuation method (SAVi) ; or iv) other approaches developed by international partners, such as the UNECE’s PPP and Infrastructure Evaluation and Rating System (PIERS). These enable a more holistic approach to measuring infrastructure projects’ cost-effectiveness, including environmental, resilience, and social costs and benefits at all stages of the infrastructure lifecycle. They can also help attract sustainable finance to projects by introducing sustainability and resilience considerations into the planning process. Policies that reflect the cost of negative externalities (i.e., carbon pricing) impact the results of these valuation methods.
Mongolia is already implementing Environmental Impact Assessments (EIAs). The Law on Environmental Impact Assessment provides that all new investments or projects requiring a feasibility study or similar document should conduct an environmental baseline assessment and undergo a screening process to determine whether they should undergo an EIA, the type of EIA required (full or partial), or, in some cases, if the project should be stopped (World Bank, 2024[55]). Expert analyses, while acknowledging the strong foundation for EIA implementation, have pointed at some shortcomings in the Law and its implementation on the ground, highlighting potential for strengthening the regulation and institutional capabilities for its application (OECD, 2025[13]; OECD, 2025[58]).
Cost-benefit analysis is another form of project evaluation that would benefit Mongolia’s decision makers. It is a form of economic appraisal often used ex ante to estimate the monetary value of the costs and benefits of a policy package within a particular geography over a set period of time; the outcome of which can be expressed as a benefit-to-cost ratio (OECD, 2006[59]). Developments in valuation methodologies have enabled policymakers to estimate the value of environmental amenities and disamenities which otherwise could not be accurately integrated into cost-benefit analyses (OECD, 2006[59]). However, the extent to which social, environmental and climate resilience costs and benefits are included in public infrastructure appraisal varies, highlighting the need for more holistic cost-benefit analysis.
Under the SIPA programme, the government piloted the use of an evaluation methodology integrating sustainability criteria into the assessment of an infrastructure project’s costs and benefits over its life cycle (Box 3.5). Unlike traditional valuations, such a method accounts for a broad range of economic, social, and environmental impacts, helping to build a stronger case for investments in sustainable infrastructure. The specific methodology used under SIPA, called Sustainable Asset Valuation (SAVi), uses a combination of system dynamics and project finance modelling to capture the full costs of environmental, social, economic and governance risks. It calculates the dollar value of externalities that result from infrastructure development (IISD, 2026[60]). The use of this type of methodology allows to make investment decisions that are not only based on a holistic valuation of risks, but also on the extent to which their investments will contribute to fulfilling national development priorities, curbing climate change and addressing its effects, and achieving the UN SDGs. They can thus be used by policymakers and investors to steer capital toward sustainable infrastructure (IISD, 2026[60]).
Ulaanbaatar faces acute transport challenges linked to congestion, air pollution, fuel use and rising mobility demand. In this context, the International Institute for Sustainable Development (IISD), in collaboration with the Asia Infrastructure Research Institute (AIRI), applied the Sustainable Asset Valuation (SAVi) methodology to assess the full electrification of the city’s public bus fleet (1 303 buses), including scenarios that combine electrification with a modal shift from private vehicles to public transport. The assessment evaluates economic, social and environmental costs and benefits over a 25-year period (2025–2050), discounted at 5%, capturing impacts that are typically omitted from standard cost–benefit analysis (CBA).
While a conventional appraisal would focus primarily on capital expenditure, operating and maintenance costs, and fare revenues, the SAVi assessment quantifies a broader set of avoided societal costs, including reduced fuel consumption, lower maintenance requirements of electric buses, avoided CO₂ emissions, and reductions in local air and noise pollution. Notably, SAVi monetises avoided fuel costs (the single largest benefit in the analysis) alongside avoided health and welfare impacts from pollution exposure, which are not typically captured in standard CBAs.
The results show that the economic case for electrification strengthens significantly when these wider impacts are accounted for, and even more so when electrification is paired with policies that encourage modal shift.
Values of benefit-cost ratio (BCR)
Under the electrification-only scenario, cumulative discounted net benefits amount to MNT 93 355 million (USD 26.3 million), driven primarily by avoided fuel and maintenance costs. With a 10% modal shift from private vehicles to buses, discounted net benefits increase to MNT 2 752 629 million, reflecting additional gains from higher public transport use, reduced private vehicle travel, and associated reductions in emissions, noise and congestion-related externalities.
Source: (IISD, 2026[60]).
3.2.5. Mainstreaming resilience into infrastructure development
In today’s rapidly evolving global landscape – marked by rising climate risks, high uncertainty, and systemic interdependence – the need for anticipatory and risk-informed policymaking has never been greater. Climate change is increasing the frequency and severity of extreme weather events, compounding existing vulnerabilities, and threatening the reliability of critical infrastructure systems. For Mongolia, the stakes are particularly high: its heavy reliance on a narrow range of economic activities, combined with its landlocked geography and geopolitical position, heightens vulnerability to climate-related disruptions. Anticipating how climate hazards may unfold and interact with domestic and external pressures will be essential to developing future-ready infrastructure policies that safeguard development gains and strengthen national resilience.
Comprehensive climate risk assessments are essential for risk-informed infrastructure planning. Integrating climate hazard mapping, vulnerability assessments, and long-term scenario analysis into project design, selection and management processes allows policymakers to identify priority investments, evaluate trade-offs, and deliver assets capable of withstanding both slow-onset and acute climate hazards. Yet, in Mongolia, tools and data for assessing climate risks to infrastructure remain limited. Most available information focuses on hazard detection, with insufficient integration of exposure and vulnerability dimensions, limited use of forward-looking climate projections, and datasets geared toward short-term monitoring rather than long-term risk analysis or prevention planning. Sector-specific risk assessments and projections of climate-induced economic losses are also rare. Overall, risk information is not systematically embedded into national or sectoral infrastructure planning processes (OECD, forthcoming[41]).
Climate-resilient standards and regulations are equally pivotal to ensure that infrastructure design, construction, and operation are resilient to changing climate conditions (OECD, 2024[61]). Many OECD and G20 countries have updated building codes, engineering standards, and infrastructure regulations to incorporate resilience-building and risk-reduction specifications. In Mongolia, however, the integration of climate resilience standards and requirements into existing regulations remains limited. While some differences across sectors may apply, the application of resilience standards remains dependent on project size and financing sources, with internationally funded projects integrating climate risk and adaptation considerations far more often than domestically funded ones (OECD, forthcoming[41]). This regulatory gap exposes new investments to severe future losses and undermines efforts to align infrastructure development with national climate adaptation and resilience objectives.
Strengthening public procurement frameworks, PPP criteria, and infrastructure financing standards can also play a key role in mainstreaming climate resilience into infrastructure delivery. International experience shows that requiring climate risk assessments, adaptation measures, and lifecycle cost analyses in tender documents, concession agreements, and PPP contracts, helps embed resilience considerations in project planning and implementation. Such provisions not only improve the long-term reliability and durability of assets but also enhance investor confidence by reducing exposure to physical climate risks and potential cost overruns. In Mongolia, however, such provisions remain at a nascent stage, with limited integration of climate resilience considerations into procurement and PPP frameworks.
3.2.6. Integrating gender considerations into infrastructure planning and evaluation frameworks
Applying a gender lens to infrastructure development is, in Mongolia as elsewhere, a critical pillar of gender equality. Infrastructure plays a foundational role in enabling equitable access to essential public services, including energy, transport, water, and digital connectivity. Beyond its technical function, it is a powerful driver of inclusive economic growth and social justice, shaping opportunities in key areas such as health, education, and employment. Better integrating gender considerations into infrastructure policies offers a strong opportunity for Mongolia to tackle persisting gender gaps. Between 2014 and 2024, Mongolia’s rank in the World Economic Forum (WEF) Global Gender Gap Index fell from 42nd to 85th place (out of 146 countries), with declines particularly marked in the areas of political empowerment and economic participation and opportunity (World Bank, 2024[62]).
Although Mongolia has established strong legal and policy foundations for the promotion gender equality, several gaps persist. The 1992 Constitution guarantees equal rights and protection from discrimination for all individuals, further reinforced by the 2011 Law on Promotion of Gender Equality (LPGE). The LPGE, recognised internationally as a best practice, mandates gender mainstreaming across laws, programs, and budgets, requires sex-disaggregated data collection, and sets quotas for gender representation in civil service decision-making roles. Despite these robust foundations, a 2022 evaluation of the LPGE found implementation to be below average, with persistent economic inequalities and limited progress in gender-responsive budgeting and procurement, largely due to insufficient expertise, weak cross-sector co-ordination, and entrenched stereotypes within state institutions. Subsequently, the National Committee on Gender adopted the 2022–2031 Cross‑Sectoral Strategic Plan for Promoting Gender Equality (CSSP) to strengthen the LPGE implementation. While Mongolia’s SDG and Vision 2050 frameworks are generally aligned, only five out of nine SDG 5 (Gender Equality) targets are reflected in Vision 2050, with gaps in areas such as women’s leadership and equal economic rights. To address this, the Ministry of Economy and Development is integrating gender metrics into mid-term development plans and fostering cross-sector co-ordination. Many social development indicators, however, still lack gender-disaggregated data.
Mongolia’s national mechanism for promoting gender equality is anchored by the National Committee on Gender (NCG), chaired by the Prime Minister and supported by a 14-member secretariat. The NCG brings together state secretaries from key ministries, such as Economy and Development, Finance, Environment and Climate Change, Justice, Education, Health, and Family, Labour and Social Protection, alongside civil society representatives, though infrastructure ministries are notably absent. The committee meets regularly and oversees twelve sectoral committees within line ministries, as well as local committees in all provinces and districts, each led by ministry state secretaries and including gender specialists. These bodies report to their respective ministers or local councils, and their work is supported by a national pool of gender equality trainers and experts across various fields.
Sectoral strategies for gender equality in Mongolia vary in scope and effectiveness. The environment sector led the way with a gender-responsive strategy for 2014–2030, followed by initiatives in finance, construction, roads and transport, and energy. These strategies include commitments to gender-responsive budgeting, mainstreaming gender in policy planning, and promoting women’s representation in leadership, but challenges remain, especially in infrastructure sectors where objectives are often weak or simply absent. The real impact of sectoral gender strategies is unclear, as annual reports tend to focus on activities rather than measurable outcomes.
Taking action to better integrate gender considerations in its infrastructure evaluation frameworks would help the government advance its gender equality agenda. Such actions could entail the inclusion of robust gender analysis in environmental and social impact assessments which are mandatory for project selection, as well as the tracking of gender-sensitive projects and their outcomes. Particular attention should be paid to enhancing data on women’s participation in public consultations, especially in rural areas, to strengthen accountability and inclusiveness. Further measures could consist of:
Applying gender analysis systematically across all stages of project selection and implementation using existing methodologies, including in the State Investment Programme;
Developing standard operating procedures for gender-sensitive project appraisals in collaboration with gender and infrastructure experts;
Revising monitoring and evaluation systems to include tracking tools for gender-sensitive objectives, and conducting systematic analyses of projects, including megaprojects;
Designing inclusive consultation guidelines, requiring sex-disaggregated data and qualitative assessments of gender-diverse participation;
Integrating gender into training curricula for policymakers, project staff and local officials, including through the Academy of Management;
Conducting thematic reviews of gender integration across infrastructure sectors, led by the National Committee on Gender Equality, with results informing strategy updates; and
Focusing reporting on results, requiring annual reports from sectoral ministries to go beyond activities to measure progress on gender outcomes.
Mongolia has significant opportunities to attract investment into sustainable energy, transport and industrial infrastructure, supported by vast wind and solar potential, growing interest in energy tariff reform, urban mobility planning in Ulaanbaatar, and early work on renewable hydrogen for hard-to-abate sectors. However, investment conditions remain constrained by coal subsidies, weak grid flexibility, low tariffs, limited investor confidence in renewables, fragmented transport planning, and the absence of demand-side tools for industrial decarbonisation. To strengthen sectoral framework conditions, Mongolia could:
Create a more bankable framework for renewable energy investment. Accelerate tariff reform, introduce competitive auctions for new renewable projects, restore investor confidence after feed-in-tariff disputes, and prioritise grid reinforcement to reduce transmission losses and connect high-potential wind and solar regions.
Reform fossil-fuel subsidies and prepare carbon pricing carefully. Review direct and indirect support to coal producers and coal-based SOEs, align energy pricing with cost recovery, and design any carbon tax or emissions trading system alongside affordability measures, public communication and revenue recycling for renewables, clean heating and just transition support.
Develop a sustainable transport strategy linking freight, urban mobility and climate goals. Set quantitative decarbonisation and resilience targets for transport, align rail, road, border-crossing and logistics investments with NDC objectives, and ensure connectivity projects reduce rather than lock in emissions.
Modernise freight infrastructure while reducing logistics costs and emissions. Upgrade key border crossings, dry ports and multimodal logistics hubs; expand digital customs and freight monitoring tools; address rail gauge and transshipment bottlenecks; and combine corridor upgrades with rail electrification, cleaner fuels and climate-resilient design.
Scale up sustainable urban mobility in Ulaanbaatar. Move beyond current planned measures by expanding priority lanes, fare integration, public transport electrification, active mobility networks, parking and vehicle restrictions, and transit-oriented development to shift travel away from private cars.
Stimulate industrial demand for low-carbon technologies. Use green public procurement, SOE procurement, carbon contracts for difference, quotas, targeted tax credits and concessional finance to support energy efficiency, renewable electricity use, and emerging solutions such as renewable hydrogen in mining, cement, steel and heavy transport.
De-risk innovative low-carbon projects through targeted finance and international partnerships. Use guarantees, long-term purchase agreements, guarantees of origin, hydrogen hubs and MDB/IFI support to reduce financing risks, while aligning projects with international sustainable finance criteria.
Integrate water sustainability into renewable hydrogen and industrial planning. Make water availability, groundwater stress and reuse options central to the national hydrogen strategy, especially in the South Gobi, and promote co-located “green hubs” linking water, renewable energy, hydrogen and mining infrastructure.
While a robust national institutional and strategic planning framework provides a critical foundation for advancing sustainable infrastructure, it is equally essential that sector-specific frameworks align with overarching sustainability objectives to ensure coherent and effective implementation across the economy. Sector-specific frameworks refer to the set of policies, regulations, and standards that significantly influence investor decision-making by establishing obligations and shaping the conditions under which viable business models for sectoral projects can emerge. This section delves into Mongolia’s framework conditions for investments in sustainable energy, transport and industrial sectors.
3.3.1. Framework conditions for sustainable energy infrastructure development
Mongolia possesses vast untapped potential for renewable energy, particularly in wind and solar power. The country is estimated to have 2.13 TW of wind power capacity with an electricity production capacity of 2 600 terawatt hours (TWh), of which 400 GW are considered to be feasibly exploitable (OECD, 2025[13]). The most productive areas are located in the southern and southeastern regions, such as Omnogovi and Dornogovi aimags (IRENA, 2016[63]). Despite this potential, installed wind capacity remains modest, with only 155 MW installed as of 2023 (IRENA, 2024[64]). The government has plans for the installation of an additional 252 MW of wind energy before 2030 (Government of Mongolia, 2023[65]).
Mongolia’s solar energy potential is equally significant. The country benefits from 270–300 sunny days per year and high solar irradiance, especially in the south and east. With an estimated exploitable solar capacity of 700 GW, Mongolia could generate thousands of terawatt hours annually. However, current installed solar capacity remains low at 90 MW, with an additional 35 MW planned (Ministry of Energy of Mongolia, 2022[66]). There are also a number of projects in the west of the country to improve the efficiency and reduce transmission loss of existing installations. While its contribution to grid decarbonisation is still limited, solar power has played a transformative role in rural electrification. Since 2002, over 100,000 small-scale solar units have been deployed, providing electricity to about half the population, including 70% of nomadic households (Ministry of Energy of Mongolia, 2022[66]).
Despite significant water scarcity and seasonal variability, Mongolia also has considerable hydropower potential, primarily concentrated in the northern regions. Hydropower represents the largest share of planned renewable energy additions, with 315 MW allocated to the Eglin Gol (EG) River Hydropower Plant, Mongolia’s first major installation, funded by a USD 1 billion loan from China (OECD, 2025[13]). However, the project has raised environmental concerns, particularly regarding its potential transboundary impact on Lake Baikal, prompting discussions between Mongolia, Russia, and UNESCO, which has requested further environmental assessments (OECD, 2025[13]). Hydropower development is constrained by the geographic mismatch between northern generation potential and southern demand centres, compounded by limited grid connectivity and high transmission losses. Additionally, projects in the north face diplomatic and environmental challenges, particularly due to concerns from Russia over potential impacts on Lake Baikal (OECD, 2025[13]).
Even though national conditions render renewable energy development particularly complex in Mongolia, the payoff is likely substantial. Currently, the development of renewable electricity generation is hampered by the state of the grid infrastructure, its lack of flexibility, and the cost of grid expansion due to Mongolia’s vast geography. The state of Mongolia’s transmission lines is responsible for energy losses ranging from 10% to 15%, while the country’s vast territory makes the extension of these lines both costly and time consuming (EBRD, 2023[22]). The government’s engagement in energy sector reforms, which include a reform of energy tariffs, is laying the grounds for incentivising investment in electricity generation and transmission, and the EBRD announced that, in addition to renewable energy generation, the Bank will also support the strengthening of the grid (EBRD, 2023[22]). In this context, several trends suggest that directing policy and investment efforts at renewable energy expansion now will yield significant returns in the medium to long term. The economic case for renewable energy investment is strengthening year after year, as the costs of renewable energy technology, including battery storage, are declining, making new renewable power generation projects cheaper than fossil-fuel based alternatives in many parts of the world (IRENA, 2025[67]). The World Bank expects renewable energy costs to be comparable to coal-fired alternatives in Mongolia by the early 2030s (World Bank, 2024[8]). Given the lifespan of energy infrastructure, integrating these trends now makes economic sense, especially when accounting for broader benefits such as public health benefits and reduction of risks of stranded assets.
A strong, enabling framework for clean energy development is yet to be developed. Currently, both direct subsidies, such as below-market coal pricing by state-owned producers like Baganuur JSC, and indirect support through soft budget constraints for coal-related SOEs channel scarce public and private funds into sustaining coal use (OECD, 2025[13]). Reallocating these resources toward low-carbon alternatives as well as support directed at communities relying on the coal economy would not only improve the efficiency of public spending but also accelerate the deployment of sustainable energy infrastructure (EITI, 2021[68]). Such measures would need to be accompanied by “just transitions” plans, as discussed section 3.2.3. More generally, good sectoral governance, sound finance and investment frameworks, and effective environmental and climate measures are critical foundations for encouraging investments in clean energy infrastructure.
Under current national conditions, and in spite of targeted efforts from the government to scale these up, investments in solar and wind power infrastructure in general have remained limited. As of 2023, 74% of Mongolia’s foreign direct investment (FDI) stock was concentrated in the mining sector, while the power sector accounted for just 0.3% sector (National Statistics Office of Mongolia, 2025[69]). Although official FDI data for renewables is unavailable, Mongolia has attracted around 200 MW of private-sector-led renewable energy projects, largely following the introduction of feed-in tariffs (FITs) in 2007 and supported by international donors such as the EBRD and the World Bank (ADB, 2023[70]). Most of this investment has been limited to the Central Energy System and is heavily concentrated in a single project, the Sainshand Wind Farm in Dornogovi aimag, which came fully online in 2019. Since then, external investment in the sector has stalled. The OECD analysis shows that recent legal disputes in the sector affecting investors’ confidence have had a particular negative effect, as they concern the main instrument that has been used to de-risk investment in the sector – FITs (OECD, 2025[13]).
Leveraging net effective carbon rates1 (i.e., putting a price a carbon) can play an essential role in directing investments into renewable energy infrastructure in Mongolia. There is rising interest in Central Asia and Mongolia in putting a price on carbon by reforming fossil subsidies and energy tariffs, as well as exploring market-based instruments for carbon pricing and trading. Reforming these mechanisms and effectively raising the price of carbon can send strong signals to investors and encourage more clean energy projects. In addition, revenues raised from subsidy reforms and carbon pricing instruments can be allocated to policies supporting a clean and just transition.
The government has recently embarked on an ambitious agenda of reforms in the energy sector including a review of energy tariffs. Electricity prices in Mongolia remain among the lowest globally, with average residential and industrial tariffs at USD 0.045 and 0.052 per kWh, respectively. While these low prices help ensure affordability, they are largely sustained by subsidised coal and a predominantly state-owned energy sector, which distorts market signals and discourages investment in renewable energy. Recognising this, the Energy Regulatory Commission and relevant ministries, supported by development partners, are exploring reforms to the electricity tariff system, including the introduction of competitive auctions for new renewable energy projects, to create a more economically viable and sustainable energy market (OECD, 2025[13]).
A recent study of the Mongolian energy sector led by the ADB finds that tariffs below cost recovery level have led to subsidies to sector operators and cross-subsidies between electricity and heat consumer segments, and recommends that Mongolia remove subsidies and increase electricity and heating tariffs by respectively 70% and 130% (Asian Development Bank, 2023[71]). By altering the cost structure of upstream investments and lowering input costs for energy-intensive industries, fossil fuel subsidies can distort market signals, encourage the development of carbon-intensive assets and lock in high-emission infrastructure. These interventions delay the shift toward a greener economy by making low-carbon alternatives less competitive. Their review, analysis and reform or phase-out plans can underpin sound policy towards the scale-up of clean energy investments, provided plans are carefully designed, as fossil fuel subsidy reforms are typically socially sensitive. Mongolia could launch a thorough review and reform of fossil fuel subsidies, which are recognised as costly and socially unjust, to inform its energy sector reform. Fossil-fuel subsidy reforms can accelerate the transition to a low-emission economy, help ensure fair energy pricing, enhance market efficiency and optimise public resource allocation (Elgouacem, 2020[72]). Fossil fuel subsidy reviews can be useful exercises to lead in the context of energy tariff reforms, as energy pricing and taxation policies can be a source of such subsidies (Petkova, Michalak and Oharenko, 2023[73]).
Explicit carbon pricing instruments such as emissions trading systems (ETS) or carbon taxes are widely used to drive clean energy and low-carbon investments. For reasons pertaining to social acceptability rather than efficiency, ETS, more than carbon taxes, have become central tools in global carbon pricing strategies, offering market-based approaches to managing GHG emissions. While more than 30 ETS are currently operational worldwide, their designs vary significantly, reflecting the distinct emissions profiles, economic conditions, and policy goals of each jurisdiction. Kazakhstan is the only country in the Central Asia and Mongolia region with an operational Emissions Trading System (ETS). However, due to its current design and parameters, the system has so far been ineffective in establishing a meaningful carbon price. Recently, Uzbekistan announced its plans to launch a carbon trading mechanism in 2026 (Enerdata, 2025[74]).
The government is assessing the feasibility of instruments such as a carbon tax or emissions trading system, with support from international partners. Recent modelling by GIZ suggests that a gradually rising carbon tax – starting at USD 2/tCO₂ and reaching USD 35/tCO₂ by 2040 – could generate positive macroeconomic outcomes while reducing emissions by up to 9.6% in the energy sector (GIZ, 2024[75]). Crucially, reinvesting revenues into renewable energy and clean heating infrastructure, particularly through leveraged green loans, could accelerate the coal transition and modernise outdated systems. However, Mongolia’s technical, political, and institutional readiness for carbon pricing remains limited. Successful implementation will require co-ordinated reforms with changes in the energy pricing policy, robust public communication, and integration of carbon pricing within broader fiscal and social policy frameworks to ensure affordability and just transition outcomes (GIZ, 2024[75]).
3.3.2. Framework conditions for sustainable transport infrastructure development
Developing sustainable and climate-resilient transport systems will be increasingly critical for Mongolia, given the sector’s substantial environmental footprint and growing exposure to climate risks. Transport contributes significantly to Mongolia’s GHG emissions, producing approximately 4.9 MtCO₂e in 2020 – amounting to 11% of total emissions excluding LULUCF (UNFCCC, 2023[76]). Road transport is the main contributor to transport emissions (73% in 2022), followed by rail (27%) (Figure 3.8) (Asian Transport Outlook, 2024[15]). Transport also contributes to local air pollution – most significantly through emissions of nitrogen oxides (NOx), carbon monoxide (CO), and – to a lesser extent – fine particulate matter (PM2.5), amongst others (World Bank, 2020[1]). The sector, road transport especially, is vulnerable to climate risks, facing potential annual losses of USD 0.91 million due to extreme weather events and their effects (Asian Transport Outlook, 2024[15]).
Total GHG emissions in kilotons of CO2 equivalent from transport by year and sub-subsector, 1990 to 2020
Note: Other transport includes fuel combustion emissions from all remaining transport activities including pipeline transport, ground activities in airports and harbours, and off-road activities not otherwise reported.
Source: Author’s analysis based on UNFCCC (2023[76]).
In line with its climate commitments, the government is planning a series of actions to reduce GHG emissions from the transport sector in its national strategic plans but lacks a comprehensive approach. Decarbonisation measures include the expansion of renewable energy generation, grid efficiency improvements, switch to cleaner fuels, switch from road to rail, electrification of transport, and multimodal transport systems (Government of Mongolia, 2025[5]; UNESCAP, 2024[77]). In these plans, the interlinkages between energy and transport decarbonisation actions are rightfully acknowledged. The country, however, lacks a comprehensive long-term transport sustainability strategy with clear quantitative decarbonisation and climate targets, which impedes a clear view of whether rising emissions from transport will effectively be tackled. In addition, current plans put more emphasis on mitigation measures, while adaptation plans are weaker and tend to focus on emergency response rather than prevention, which is suboptimal when considering cost-effectiveness and broader benefits (OECD, forthcoming[41]).
Given the distinct spatial, functional, and institutional characteristics of urban and regional transport infrastructure, advancing sustainability will require tailored policy frameworks and differentiated tools reflecting these contextual differences. Regional transport is characterised by longer-distance travel, often dominated by freight movement and reliant on extensive infrastructure networks. In contrast, urban transport is characterised by short-distance trips, but with high frequency, in densely populated areas where congestion, pollution and public health impact are acute. Governance structures also differ, as regional transport tends to fall under regional or national regulatory bodies, whereas urban transport is generally managed by local authorities, sometimes leading to fragmented oversight. These differences necessitate differentiated sustainability measures and implementation mechanisms. In their national plans, Central Asian governments tend to favour sustainability measures targeting road and urban transport, while regional freight sustainability is often overlooked despite the importance of the connectivity agenda for the region.
Regional freight transport
Mongolia’s transport infrastructure for regional trade is marked by its landlocked situation, vast distances and low population density, which largely contribute to its heavy reliance on roads and high freight costs. The country’s road network spans over 112,000 km, of which only 9% is paved, and while all provinces are now connected to Ulaanbaatar, logistics costs remain high due to long transport distances and limited multimodal integration (ITF, 2025[14]). The railway system, primarily operated by Ulaanbaatar Railway (UBTZ), consists of 1,856 km of main lines and 826 km of branch lines, but is almost entirely diesel-powered and faces high transport costs, up to 30% of GDP (ITF, 2025[14]). Air infrastructure is centred around Chinggis Khaan International Airport, which handles nearly all international traffic (ITF, 2025[14]). As a landlocked country, Mongolia depends on its two neighbour countries, Russia and China, for access to seaports for international trade (ADB, 2022[16]). As for energy infrastructure development, Mongolia’s geographic, demographic and climatic conditions make transport infrastructure development and maintenance particularly costly.
Mongolia’s freight transport network faces several economic and sustainability challenges. Mongolia’s border crossings, crucial for trade with China and Russia, are hampered by break-of-gauge, bureaucratic inefficiencies and delays, with truck drivers facing average delays of 136 hours per vehicle (Asia News Network, 2025[78]; ITF, 2025[14]). The transport sector’s energy intensity increased between 2015 and 2020 and is well above the Asia-Pacific region’s average but is broadly on par with the global average (Asian Transport Outlook, 2024[18]). Over 95% of the rail network is diesel-powered and electrification is limited (ITF, 2025[14]). While harsh climatic conditions expose transport infrastructure to a range of risks including service disruptions, infrastructure damage, and high repair and maintenance costs, adaptation considerations remain minimal in transport planning and undermine transport infrastructure resilience in the country (OECD, forthcoming[41]).
To address connectivity and trade challenges, which are strongly linked to its prospects for economic growth, Mongolia is pursuing an ambitious transport infrastructure development agenda, with an emphasis on the facilitation of coal exports to China. The country is planning to double its rail network, with key projects like the Tavan Tolgoi–Gashuun Sukhait railway aimed at easing mineral export constraints and improving connectivity with China and Russia (ITF, 2025[14]). Under the New Recovery Policy, the government has prioritised the construction of 3 000 kilometres of new roads and the modernisation of key border crossings (ITF, 2025[14]). Aviation upgrades include expanding five regional airports and developing a new airport in Kharkhorum (ITF, 2025[14]). Mongolia is also investing in eight inland dry ports, and is planning soft connectivity measures such as advanced digital customs and transit systems, as well as express TIR Green Lanes at key border crossings, to streamline logistics and facilitate seamless cross-border transport (IRU, 2025[79]). As highlighted earlier in this chapter, Mongolia currently lacks a robust sectoral plan for aligning transport infrastructure development with climate goals, however.
Under SIPA, ITF undertook an extensive review of Central Asian and Mongolian large-scale freight transport infrastructure projects and policies, modelling their impact on connectivity, sustainability and resilience. The report highlights opportunities for Mongolia to enhance (i) connectivity, through investments in transport infrastructure and participation in regional and international connectivity initiatives such as CAREC, (ii) decarbonisation, through the shifting of coal transport from road to rail and promotion of cleaner fuels through alignment with EURO-5 regulations, and (iii) resilience, thanks to investments in multimodal infrastructure, diversification of trade corridors and development of logistics hubs (ITF, 2025[14]). The analysis yields a series of recommendations for Mongolia (Box 3.7), focusing on three core areas: enhancing cross-border infrastructure and trade facilitation, reducing freight costs and enhancing supply chain efficiency, and strengthening digitalisation and transport resilience (ITF, 2025[14]).
Strengthening cross-border connectivity and modernising freight systems will be critical to support growing trade flows and improve supply chain performance. Rising freight demand and reliance on a limited number of gateways underscore the need to upgrade border infrastructure, expand multimodal logistics capacity and reduce procedural bottlenecks. At the same time, the freight system remains exposed to inefficiencies, climate risks and limited digital integration, constraining resilience and competitiveness.
A more integrated approach can unlock synergies across connectivity, sustainability and resilience, by combining corridor expansion with rail electrification, digital logistics, modal shift and stronger climate risk management (see section 1.4.2). Modelling shows that scenarios combining connectivity and decarbonisation outperforms both the connectivity-only scenario and the disrupted business-as-usual scenario in Mongolia. This suggests that combining connectivity upgrades with efficiency measures, such as high-capacity vehicles, digital co-ordination, and reduced border delays, can make the system more resilient by creating more flexible routing options and lower-cost alternatives during disruptions.
To address these challenges, the report identifies several priority policy directions:
Upgrade cross-border infrastructure and trade facilitation. Improve rail and road capacity at key border crossings, streamline customs through digital and one-stop systems, and address rail gauge and transshipment constraints using international best practices.
Strengthen multimodal logistics and regional connectivity. Develop dry ports and logistics hubs near border points, extend connections to major provincial hubs, and diversify export corridors through enhanced regional transit arrangements.
Improve freight efficiency and reduce costs. Expand intermodal terminals, containerisation and cargo visibility systems, while engaging the private sector to reduce empty runs and improve load optimisation.
Accelerate digitalisation and resilience. Deploy digital customs, freight analytics and monitoring tools, and integrate climate-resilient design, forecasting and maintenance to reduce disruption risks.
Source: (ITF, 2025[14]).
Urban transport
Recognising its strategic importance for inclusive and sustainable development, the government is working to overcome the challenges confronting urban transport infrastructure. In Ulaanbaatar, where vehicle numbers reached over 740 000 in 2024, traffic congestion has become severe, with average speeds falling below 9 km/h during peak hours and commuters losing over 2.5 hours daily in traffic. The economic cost of this congestion is estimated at 9% of national GDP by Ulaanbaatar’s mayor office (Mongolia Weekly, 2023[80]). In parallel, rapid urban and road expansion in and beyond Ulaanbaatar also increases exposure to climate risks such as flooding and permafrost thaw, which can damage road surfaces, disrupt mobility, and impose rising maintenance costs if resilience measures are not integrated into planning and design (OECD, forthcoming[41]).
The government has set several objectives in its development plans to promote sustainable mobility in cities, with a particular focus on its capital, Ulaanbaatar. Like most governments of Central Asian countries, Mongolia’s government is putting emphasis on sustainable urban and road transport solutions such as the development of electric vehicles, enhancement and electrification of public urban transport systems, and development of better-quality roads. In recent years, in line with the objectives stated in the Vision 2050, the government has promoted e-mobility by developing national technical standards relative to electric vehicles and charging stations, deploying electric vehicles in urban public transport and taxis, and offering a range of incentives (UNESCAP, 2024[77]). The share of electric vehicles remains negligible however (EVs represent 0.3% of the national fleet and 2% of total imported vehicles) (UNESCAP, 2024[77]; Asian Transport Outlook, 2024[18]).
Through SIPA, the International Transport Forum carried out a study to help the government elaborate a plan promoting the development of a sustainable public transport system in Ulaanbaatar. The study entailed a review of Ulaanbaatar’s current sustainable mobility agenda, and a modelling exercise to measure the impact of three scenarios on the evolution of carbon emissions from urban transport: a baseline scenario (no policy action), a current policy scenario, which envisages the implementation of the government’s planned measures, and a “climate ambition” scenario, consisting of an enriched version of the current policy scenario (Table 3.4). The study concludes with the formulation of policy recommendations, derived from the modelling exercise and identification of best practices applied elsewhere.
The study finds that, although the planned policy scenario yields significant results in curbing the effects of current trends (strong urban population and income growth, shift towards private vehicles), it falls short of achieving fully Ulaanbaatar’s climate goals. Measures under the planned policy scenario allow to keep CO2 emissions increase within +54% between 2015 and 2050 (versus +400% in the baseline scenario) and to maintain the same ratio of public transport use versus private vehicles, but they do not allow to decrease emissions from urban transport in the city. The climate ambition scenario, on the other hand, allows to achieve a -52% CO2 emission decrease by 2050 compared to 2015 levels, thanks to a significant uptake of all alternative modes of transport to private cars, including a massive shift from private vehicles to public transport modes. In the climate ambition scenario, nearly half of the CO₂ emissions reduction projected for 2050, compared to the baseline scenario, is driven by the electrification of vehicles (49% of private cars and 100% of public transport buses). In addition to decarbonisation outcomes, although these are not quantified in the model, measures under the climate ambition scenario also bring sustainability benefits related to health, safety and overall quality of life for Ulaanbaatar citizens.
The ITF study identifies three priority directions for the future of a sustainable urban passenger transport system in Ulaanbaatar aligning with international best practice. Firstly, the authorities should seek to accelerate the development of the public transport service to curb the surge of private car use and reduce congestion. Secondly, in the context of rapid urban expansion, they should enhance the planning of mobility to ensure new settlements are well connected to the urban public transport network. The third priority is to promote new technologies and active mobility to reduce carbon emissions, improve traffic safety and contribute to the development of a more liveable city, in line with international best practices (ITF, 2023[81]).
The expected sustainability gains from Ulaanbaatar’s sustainable mobility plans will also depend on the ability of the government to attract investment in clean energy and low-carbon technologies, as explored in the rest of this section. UNESCAP notes that reliance on coal-based electricity, high upfront costs of electric vehicles, lack of charging infrastructure, battery technology limitations in Mongolian specific geographic and climatic circumstances and limited technical expertise for maintenance and repair are all obstacles to the successful development of clean electric mobility in Mongolia (UNESCAP, 2024[77]). Any plan for sustainable mobility therefore needs to be embedded in a broader policy package designed to steer investments away from fossil fuels and attract financing in clean solutions, as advocated throughout this report.
3.3.3. Framework conditions for sustainable industrial infrastructure development
Although the industrial infrastructure is responsible for a small share of GHG emissions, it is highly carbon- and energy-intensive and plans for its expansion may contradict national sustainability commitments under a business-as-usual scenario (Figure 3.9). Industrial emissions account for 6% of Mongolia’s total greenhouse gas emissions, with mining, a sector considered as hard to abate, responsible for 95% of that share. Although this is below the OECD average of 10.5%, it is higher than Kazakhstan (3.1%) and comparable to Uzbekistan (6.1%) (Gutschow et al., 2022[82]).
As mining output has expanded over the past two decades, emissions have risen sharply, reflecting the sector’s high carbon intensity due to its reliance on fossil fuels. Along with GHG emissions, the mining sector is responsible for a range of environmental impacts, including water and air pollution, and land degradation (OECD, 2019[19]). Addressing these risks has been increasingly seen as an essential condition for investments in the sector, as mining operators face ever higher scrutiny regarding their environment and social impacts, with ESG, license to operate and climate change ranking among the sector’s top four challenges (Ernst & Young, 2023[83]). With mining producing only USD 0.15 of value added per kilogram of CO₂ emitted (less than half the OECD average) the sector’s growth has significantly shaped Mongolia’s emissions profile. The energy intensity of the sector is also very high compared to OECD standards and suggest that the sector is energy-intensive and inefficient (OECD, 2025[13]). As the mining infrastructure development is set to continue playing a critical role in national economic development plans, the ability of the government to incentivise investments into sustainable and low-carbon solutions will be critical to driving the sector’s contribution in NDC and other sustainability plans.
Note: In 3.9.c., the chart depicts value added in the mining sector per kg of CO2. In 3.9.d., the chart depicts the value added in the mining sector per MJ of energy consumed.
Source: 3.9.a. and 3.9.b. based on Gutschow et al., (2022[82]); 3.9.c. and 3.9.d based on OECD (2025[13]).
Stimulating demand for clean energy and energy efficiency solutions by the mining industry is central to Mongolia’s ability to unlock investments into sustainable infrastructure. Between 2010 and 2021, electricity demand from Mongolia’s industrial infrastructure surged by 129%, rising from 7,538 terajoules (TJ) to 17,246 TJ. This growth positions industry as the dominant electricity consumer, both in absolute terms and in incremental demand. If this trend continues at the same pace through 2030, industrial electricity consumption could reach 30,712 TJ, exceeding Mongolia’s total electricity demand in 2020 by over 6,000 TJ. A substantial share of this demand originates from the mining sector, where firms often lack confidence in the central power system’s reliability. In response, companies have pursued self-sufficiency by investing in co-located renewable energy infrastructure (OECD, 2025[13]). These investments are not only aimed at securing stable electricity supply but also at ensuring transparency over the carbon intensity of their operations (OECD, 2025[13]). This underscores the critical role of demand-side policies: by creating clear, stable incentives and regulatory frameworks as described in section 3.3.1, such policies can catalyse firm-level investments in clean energy and energy efficiency, particularly in high-demand sectors like mining and heavy industry. Renewable energy-based electrification and energy efficiency, although critical, cannot be the sole answer to aligning industrial development with climate outcomes however, especially in industries such as mining, where GHG emissions are hard to abate.
2000-2021, TJ
Source: OECD calculations based on IEA (2022[50]) and OECD (2025[13]).
At the request of the government, under SIPA, the OECD helped develop national plans for developing renewable hydrogen, a technology that can be used as an alternative to fossil fuels in hard-to-abate industries such as metallurgy, cement, chemicals or mining (OECD, 2025[13]). Mongolia’s potential and cost-competitiveness for renewable energy production, a key driver of competitiveness for the production of hydrogen through water electrolysis via renewable electricity, is leading the government to envisage its production domestically. In Mongolia, this technology can help to decarbonise hard-to-abate industrial activities such as mining, cement and steel production. It can also be used in the heavy-duty and public transport sectors, where battery technology limitations do not meet local conditions, and as renewable energy storage and integration solution into the grid.
Stimulating investments into an innovative low carbon solution such as renewable hydrogen requires to put measures in place addressing multiple issues leading to a “high risk - low expected returns” case for such projects. In addition to regulatory measures such as carbon pricing or industrial emission limits, measures to stimulate low-carbon investments need addressing specific technological, commercial and country risks translating into a higher cost of capital, especially in EMDEs (Lee and Saygin, 2023[84]). The OECD’s work helped identify framework conditions for encouraging the sustainable transition of the national mining and industrial sector, as well as approaches to promote both renewable energy and low-carbon solutions such as renewable hydrogen among industry stakeholders.
Aligning Mongolia’s industrial infrastructure development with low-carbon and sustainability outcomes requires two broad sets of actions: one directed at the promotion and facilitation of investments into clean energy and low-carbon solutions, and the other one directed at enabling access to low-carbon innovation and technology (OECD, 2025[13]). Working in these two directions can help align the national investment and innovation framework with climate targets by providing incentives and helping firms build the knowledge and technology to innovate and invest in low carbon solutions. The OECD recommends a set of five actions that can underpin such efforts (Box 3.8).
Mongolia could strengthen incentives for low-carbon innovation by introducing a low-carbon R&D tax credit applicable to both private firms and state-owned enterprises. While such instruments are typically horizontal, their impact could be enhanced by applying eligibility or conditionality criteria aligned with Mongolia’s Sustainable Development Goals Financing Taxonomy, helping to steer firm-level innovation toward low-carbon objectives.
Targeted public and concessional financing can complement tax incentives, particularly for low-carbon technologies that are early-stage, high-risk or insufficiently attractive to private investors. Building on experience with development finance mechanisms, such as Japan’s Joint Crediting Mechanism, Mongolia could more explicitly orient development and domestic green finance toward industrial low-carbon innovation. Expanding concessional finance beyond the residential sector would help support technology adoption in emissions-intensive industries.
Institutional support for innovation could be strengthened through the establishment of a public low-carbon innovation and technology laboratory. Embedded within an existing delivery structure, such as the New Recovery Policy Accelerator, this platform could centralise information on low-carbon projects, identify barriers to technology adoption, and support early-stage project development across sectors.
Finally, closer links between research institutions and industry could accelerate technology transfer and skills development. This could include creating a dedicated low-carbon technology transfer unit within higher education and research institutions, as well as piloting academic-industry placement schemes in emissions-intensive sectors to help firms overcome capacity constraints and support the practical uptake of low-carbon technologies.
Source: (OECD, 2025[13]).
Innovative clean energy and low-carbon solutions, such as carbon capture and storage solutions and renewable hydrogen which Mongolia is considering, face specific financing constraints in EMDEs, and therefore require innovative approaches in efforts to mobilise investments from the private sector. A growing literature is highlighting the challenges faced by EMDEs in mobilising finance for sustainable and low-carbon infrastructure, largely due to their comparatively higher cost of capital. The OECD’s dialogue on innovative low carbon solutions undertaken under the Sustainable Infrastructure Programme in Asia with countries of Central Asia and Mongolia has largely focused on the case of renewable hydrogen development, which is raising much interest in the country and its region. Attracting private sector financing for projects supporting such development, however, is challenging in Central and Mongolia, as it is the case in other regions dominated by emerging economies (Lee and Saygin, 2023[84]). This section explores demand-side policies and de-risking instruments that can unlock such financing, drawing on the work to support the development of a national hydrogen strategy in Mongolia.
Demand-side policies are essential instruments for mobilising private finance into innovative low-carbon technologies, such as, for example, renewable hydrogen. By signalling a clear and credible commitment to the low-carbon transition and climate resilience, governments can reshape the economic incentives that guide firm-level R&D and investment decisions. These policies help overcome market failures that inhibit innovation and deployment, reduce off-take risks that inflate financing costs, and create early demand signals that justify investment in high-risk but scalable technologies (OECD, 2025[13]). Whether implemented through technology-neutral frameworks or more directional approaches such as quotas, tax credits, or public procurement, demand-side interventions play a pivotal role in accelerating the adoption of clean energy and climate-resilient solutions, especially in sectors where market development remains nascent and fiscal space is constrained (OECD, 2025[13]). Mongolia currently lacks a policy toolkit for stimulating demand in low-carbon solutions. While certain provisions do exist within the fiscal and customs framework to lower capital costs for renewable energy projects, these are not strategically applied. Beyond these provisions, there are no ‘market shaping’ policies that are relevant to low carbon technologies (OECD, 2025[13]).
A Mongolian demand-policy toolkit for low carbon and climate resilient solutions can include:
Carbon Contracts for Difference (CCfD), which cover the cost difference between CO2 abatement and a reference price. For example, the UK’s CCfD scheme for offshore wind farms has driven investment and innovation, reducing costs over time.
Public and SOE Procurement, which can prioritise low-emission and resilience-enhancing materials and stimulate demand for low-carbon solutions. Public procurement has proven effective in sectors like construction and transport, as seen in the US Federal Buy Clean initiative.
Quotas and Mandates, which can stimulate market growth by establishing quotas for low-emission solution consumption. For example, Romania's mandate for industrial users to meet 50% of their hydrogen demand with low-emission sources by 2030 has spurred investment in renewable hydrogen infrastructure.
End-Use and CAPEX/OPEX Subsidies. For example, the USD 1/kg H2 tax credit in several US states has boosted end-user purchasing power for renewable hydrogen.
OECD and IEA experience show that countries increasingly rely on policy toolkits to stimulate demand in innovative low carbon solutions as part of their sectoral decarbonisation strategies. Designing such toolkits, however, often encounters a common challenge in industrial policy: balancing the strategic allocation of limited public resources to support promising but pre-commercial technologies, while avoiding the risk of 'picking winners' - a task governments may not be best equipped to perform (OECD, 2025[13]).
Green public procurement and green procurement by SOEs can be particularly powerful tools in countries like Mongolia, where SOEs account for a comparatively large share of economic activity by OECD standards. SOEs play a greater role in economies of Central Asia and Mongolia, where private sectors are narrow by OECD standards. Their involvement in financing low-carbon and climate-resilient infrastructure is crucial not only for advancing national decarbonisation and adaptation objectives, but also for attracting additional funding from other sources, including the private sector. Actions such as the promotion of RBC standards in the SOE sector, as discussed in section 3.4.3, and improvement of SOE governance and management, in line with the OECD Guidelines on Corporate Governance of State-Owned Enterprises and the OECD Recommendation on the Role of Government in Promoting RBC, can contribute to the mobilisation of SOE financing into clean energy and low carbon, resilience-focused solutions, in addition to targeted SOE green or sustainable procurement measures.
Governments have several policy levers at their disposal to reduce capital costs for innovative low-carbon projects, and hydrogen, which the government is looking to develop, serves as a compelling example. Targeted measures such as preferential tax treatment can improve early-stage cash flows, helping to de-risk investments by first movers (Lee and Saygin, 2023[84]). In many jurisdictions, additional de-risking tools are being deployed to support hydrogen developers. These include regulatory clarity, feed-in tariffs (particularly for renewable energy infrastructure used in hydrogen production), and competitive auctions (Table 3.5). Such instruments not only lower financing costs but also help mobilise innovation resources critical for low-carbon development. In Mongolia, however, limited fiscal capacity constrains the use of capital grants for early-stage projects. This makes it even more important for policymakers to adopt a creative mix of investment and fiscal incentives to achieve similar de-risking effect (OECD, 2025[13]). Mobilising finance from international financial institutions (IFIs) and multilateral development banks (MDBs) will likely be essential to fill the gap left by constrained public budgets. As such, it is crucial that low-carbon projects seeking public support in Mongolia are well-aligned with the financing criteria and strategic priorities of these institutions (OECD, 2025[13]).
De-risking instruments are crucial for attracting international private finance into innovative technologies supporting the decarbonisation of industries. Understanding these instruments and supporting their use should be part of broader policy agenda aiming at establishing environments conducive to demand for industry decarbonisation solutions and accompanying financing instruments, including measures such as those discussed in section 3.3.3. Under the Climate Club, a high-ambition intergovernmental forum for exchange on industry decarbonisation which Secretariat is jointly hosted by the OECD and the IEA, the OECD has developed a financial toolkit taking stock of de-risking instruments, along with economic and financial instruments, focusing on the financing of industry decarbonisation (OECD/Climate Club, 2025[85]). The toolkit targets technical assistance providers supporting countries in their efforts to attract financing for innovative decarbonisation projects. Initiatives such as the Climate Club are pivotal to drive international, multi-stakeholder co-operation needed to accelerate the adoption of solutions needed to bring emission-intensive industries to net zero. As Mongolia advances its agenda to develop renewable hydrogen-based decarbonisation solutions, participation in such initiatives and leveraging international co-operation will be important (OECD, 2025[13]).
The alignment of industrial investments with climate objectives should not come at the expense of other critical national environmental and sustainability goals: this is well illustrated by the case of renewable hydrogen production, where plans to develop such production need to consider effects on local water demand. Water scarcity is a critical issue in Mongolia and needs to be considered in infrastructure planning considerations, as highlighted in section 3.1.3. The OECD’s work to support the development of a national renewable hydrogen strategy in Mongolia provides analyses and recommendations for a cross-sectoral approach bringing together clean energy and water sustainability considerations, including through careful planning, promotion of co-located infrastructure and development of “green hubs” (OECD, 2025[13]) (Box 3.9).
Mongolia’s potential for domestic renewable energy production at competitive cost makes it a potentially competitive renewable hydrogen producer, subject to several conditions, including the ability to satisfy the sector’s demand for water. The potential for renewable electricity production is highest in the Ömnögovi, Dundgovi and Dornogovi aimags in the South Gobi Desert. The region is already highly water stressed, relying on non-replenishable groundwater sources, and facing rising water demand from the mining sector. A small number of hydrogen projects are already under development in this region.
The OECD estimates that the production of 1 kg of renewable hydrogen in the South Gobi region will require 41.45 litres of groundwater. Based on this estimate, a local renewable hydrogen project targeting 1.5 KT of production capacity will demand 62 thousand m3 of water. Scaling-up the annual production of renewable hydrogen to 1 MT (the 2030 target of Chile, which is looking to position itself as a competitive exporter), would require 41 455 thousand m3 of water, which is equal to the expected water demand for the mining sector by 2030. Hence, the development of a renewable hydrogen sector of 1 MT by 2030 would double the total industrial water demand compared to current forecasts.
In conclusion, meeting the water demand for the first stages of development of pilot projects already seems potentially challenging. While the amount of water required could be considered negligible when compared to other uses, the water required for renewable hydrogen production will likely need to be withdrawn from aquifers already under stress. To anticipate and manage new water demand for renewable hydrogen sustainably, the OECD recommends:
Integrating water sustainability as a central pillar of a national renewable hydrogen strategy. This means including the effects of industry scale-up on the water sector in any discussion of future production targets; monitoring and developing data for water use and standards in renewable hydrogen production; stimulating water management knowledge transfer from the mining sector to the renewable hydrogen sector; and integrating water efficiency and supporting innovation, as well as in project appraisal.
Embedding industrial water use policies that support sustainable access to, and use of, water into the broader national water management framework. Measures include improving cross-sectoral co-ordination at the national level; enhancing institutional capabilities with a particular focus on RBOs; ensuring effective multistakeholder dialogue as part of strengthened Strategic Environmental and Environmental Impact Assessments; improving water data systems; and considering revisions to water tariffs in water allocation regimes, to incentivise water efficiency and address water pollution.
Exploring opportunities and plan for co-ordinated water and renewable hydrogen infrastructure development. Mongolia could explore opportunities for wastewater treatment and re-use. Following examples in OECD countries such as Australia and Spain, plans could also follow the model of “hubs” involving the co-location of water, hydrogen and industrial (e.g. mining) infrastructure. This model could enable the realisation of agglomeration economies and cost-sharing benefits and encourage a circular economy approach at the local level.
Source: (OECD, 2025[13]).
Mongolia has made clear progress in building the policy foundations for mobilising private finance into sustainable infrastructure. The Green Taxonomy, SDG Finance Taxonomy, Sustainable Finance Roadmap, green bond regulation, climate-related disclosure guidelines and the Mongolia Green Finance Corporation have created a stronger framework for green lending and capital market development. The first municipal green bond issued by Ulaanbaatar also shows how new instruments can finance concrete infrastructure, such as battery storage for renewable integration. To build on this progress, Mongolia could:Top of Form
Bottom of Form
Move from voluntary taxonomy use to practical application in infrastructure finance. Strengthen regulatory incentives and technical guidance for banks, investors and public bodies to apply the Green Taxonomy and SDG Finance Taxonomy in lending, procurement, concessional finance and infrastructure planning.
Add stronger MRV requirements to green and SDG finance frameworks. Develop monitoring, reporting and verification rules to track whether financed projects deliver expected climate, resilience and environmental outcomes, especially in complex infrastructure sectors such as energy, transport and urban development.
Scale up green bonds and municipal finance. Build on Ulaanbaatar’s first municipal green bond for the Baganuur battery storage project by expanding the pipeline of bankable green infrastructure projects, supporting additional municipal issuances and using credit enhancement to attract institutional investors.
Use blended finance and guarantees to improve project bankability. Expand tools such as concessional wholesale finance through the Mongolia Green Finance Corporation, GEFF-style lending, guarantees and risk-sharing mechanisms to lower financing costs for clean energy, energy-efficient housing, industrial upgrades and climate-resilient infrastructure.
Deepen capital markets and diversify financial providers. Develop non-bank finance, insurance, microfinance, savings and credit co-operatives, digital finance tools and market infrastructure to reduce reliance on bank lending and broaden access to long-term sustainable finance.
Connect RBC standards directly to infrastructure financing and delivery. Implement the National Action Plan on Business and Human Rights, strengthen social impact assessments, labour inspection and anti-corruption oversight, and embed RBC due diligence in public procurement, SOE governance and sustainable finance requirements.
Mobilising private sector financing is essential to closing Mongolia’s infrastructure investment gap while aligning with national sustainability goals. As private sector involvement grows, so does the need to ensure that investments contribute positively to environmental and social outcomes. This section explores the policy tools and enabling conditions that can support this shift, examining the development of a green taxonomy, and the mobilisation of sustainable and green finance. It also examines the role of regulatory frameworks, institutional capacity, and innovative financing mechanisms in unlocking private capital for clean energy and low-carbon infrastructure, including emerging solutions such as renewable hydrogen. Drawing on recent OECD and international partner initiatives, the section highlights how Mongolia can strengthen its financial policy environment to attract and guide private investment toward sustainable infrastructure development. It ends with setting out how Mongolia can promote Responsible Business Conduct (RBC) principles and standards to maximise the contribution of the private sector to the sustainability outcomes of foreign and domestic investments into infrastructure, in particular by managing their potential adverse impacts.
3.4.1. Green taxonomies
The development of the green taxonomy is a foundational step to the directing of capital flows toward sustainable infrastructure projects. By providing a clear and credible reference point, the taxonomy can help reduce greenwashing, improve the transparency of sustainability claims, and support the issuance of green bonds or the establishment of climate-related investment funds. It also strengthens the enabling environment for Mongolia’s financial institutions to integrate environmental, social, and governance (ESG) criteria into lending practices, particularly in sectors such as energy, transport, and urban development where infrastructure investment needs and exposure to climate risks are substantial. The taxonomy could also facilitate international climate finance mobilisation by demonstrating alignment with global frameworks and standards, thus improving investor confidence.
Mongolia has developed a national green taxonomy to support the alignment of finance with sustainable development goals. In 2019, the Bank of Mongolia and the Financial Regulatory Commission jointly launched the Mongolian Green Taxonomy, developed by the Mongolian Sustainable Finance Association with technical support from the International Finance Corporation (IFC). The taxonomy is based on international best practices, including the EU Taxonomy and the Common Ground Taxonomy, but is tailored to Mongolia’s national development priorities, including sustainable mining, renewable energy, sustainable agriculture, and climate-resilient infrastructure (MSFA, 2022[86]). The taxonomy serves as a classification system to help financial institutions, investors, and government actors identify activities that contribute to environmental objectives, such as climate change mitigation and adaptation, pollution prevention, and natural resource conservation.
The Mongolian Sustainable Finance Association also developed the SDG Finance Taxonomy, which represents a complementary effort to deepen market alignment with sustainability objectives. Adopted in 2023, this taxonomy builds on the MSFA’s long-standing work with commercial banks to integrate environmental and social risk management frameworks and aligns more closely with private-sector needs. It integrates the public green taxonomy developed in 2019 and expands beyond environmental criteria to also incorporate broader ESG considerations. It intends to support financial product innovation – including sustainability-linked loans and bonds – across a wider range of economic sectors (MSFA, 2025[87]). The SDG Finance Taxonomy provides practical guidance tailored to domestic financial institutions, and its development reflects increasing interest among Mongolian banks in climate-aligned lending.
However, several implementation challenges remain. The taxonomies’ adoption across the financial sector is still at an early stage, and their use is currently voluntary. Many banks and institutional investors lack the technical capacity or regulatory incentives to apply them consistently in risk assessments or portfolio decisions. Moreover, the taxonomies do not yet include detailed monitoring, reporting, and verification (MRV) requirements, which limits their utility in ensuring the environmental performance and climate resilience of financed projects. Additional guidance is needed to operationalise the taxonomies across sectors, especially in infrastructure development where emissions, resilience, and lifecycle considerations are complex and interconnected. Strengthening regulatory support, building institutional capacity, and integrating the taxonomy into public procurement, concessional lending, and infrastructure planning processes will be critical to ensure its effectiveness in driving sustainable and climate-resilient infrastructure outcomes.
3.4.2. Sustainable and green finance instruments
Financing Mongolia’s infrastructure financing gap while aligning on national sustainability objectives will require to diversify financing sources. The mobilisation of sustainable and green finance can greatly improve access to financing for infrastructure responding to sustainability criteria, such as clean energy and low carbon and climate-resilient infrastructure.2 It requires not only to align infrastructure planning and development criteria with sustainability and resilience goals, but also to put in place strong regulatory and policy frameworks as well as institutional and human capabilities underpinning the development of national sustainable and green financial markets.
From the point of view of financiers, there is a strong rationale to transition to sustainable financial frameworks. Climate change poses both physical and financial risks to individual financial institutions and the broader financial system, underlining the need for prudent macroeconomic policy. For insurers, increasing climate-related hazards such as floods, droughts, and wildfires could increase the frequency and severity of claims, potentially making some assets uninsurable (MSFA, 2022[86]). For banks, properties used as loan collateral may lose value, and borrowers – especially in sectors like agriculture – could face higher default risks due to climate-related and other shocks (MSFA, 2022[86]). This highlights the importance of mobilising green finance to mitigate and adapt to climate risks.
Since 2019, Mongolia has made progress in developing a framework for green finance, providing a set of green standards, and establishing governance arrangements. In 2019, the Asian Development Bank reported various weaknesses in Mongolia’s capacity to develop green finance, including: the lack of a coherent framework on green finance, weak institutional mechanisms for policy co-ordination, dissonance between sustainable growth targets and national investment, and uncertainty over what constitutes green finance (ADB, 2019[88]). However, recent strategy developments show progress (Table 3.6).
Mongolia has built a comprehensive institutional framework to support green finance, engaging key actors across the financial and public sectors to co-ordinate policy, regulation, and implementation. The Financial Stability Council (FSC) provides strategic oversight and brings together key regulators to align national sustainable finance efforts (FSC, 2022[89]). The Bank of Mongolia (BoM) supports green lending by issuing climate risk disclosure guidelines and adjusting prudential tools to encourage sustainable investment (Central Bank of Mongolia, 2024[90]). The Financial Regulatory Commission (FRC) regulates capital markets and non-bank financial institutions, promoting green bonds and ESG disclosures (IFC, 2025[91]). The Ministry of Finance (MoF) leads sustainable budgeting and financing strategies, including Mongolia’s Integrated National Financing Framework (INFF). The Mongolian Sustainable Finance Association (MSFA), formed by commercial banks, supports implementation through capacity building and co-ordination across the financial sector (MSFA, 2022[86]). International partners such as the IFC, UNDP, ADB, and EBRD provide essential technical assistance, finance, and advisory support (MSFA, 2022[86]).
Mongolia is also taking important steps to improve access to green finance through a mix of public–private partnerships, international support, and regulatory reforms. The Mongolia Green Finance Corporation (MGFC), established with support from the Green Climate Fund (GCF), aims to provide concessional wholesale financing to local banks and non-bank financial institutions (MSFA, 2025[87]). Its goal is to increase investment in energy-efficient housing, industrial upgrades, and low-carbon infrastructure (MSFA, 2025[87]). Similarly, the EBRD’s Green Economy Financing Facility (GEFF) offers loans and leases to households and small businesses for green technologies, including energy-saving equipment and water-efficient agriculture, with local partners such as Khan Bank and XacBank (EBRD, 2023[22]).
As a result of these efforts, Mongolia has made steady progress in expanding green finance over the past five years, significantly increasing the availability of capital for both the development of new sustainable infrastructure and the greening of existing assets. Green loans have increased as a share of Mongolian banks’ total loan portfolios but remain well below the 2030 target of 10% (Figure 3.11). In 2023, the country issued its first green bonds – supported by the International Finance Corporation (IFC)—to mobilise funding for climate-aligned lending and support the development of local capital markets (IFC, 2023[92]). Regulatory bodies such as the Financial Regulatory Commission (FRC) are working with the IFC to introduce ESG guidelines and improve SME access to credit through innovations like value-chain finance (IFC, 2025[91]). Mongolia is also scaling up green finance through large-scale renewable energy and nature-based climate finance initiatives. A recent partnership with the EBRD will support the development of up to 500 MW of solar and wind energy (GEFF, 2025[93]).
Cumulative loan value in million MNT by green taxonomy type (left axis) and green loans as a percentage share of total loans (right axis), Q1 2023 to Q1 2025
Source: Author’s elaboration of Bank of Mongolia (2025[94]).
Recent legislative changes have enabled the issuance of green municipal bonds by Ulaanbaatar to finance green infrastructure. In June 2021, Mongolia took a decisive step toward sustainable finance by approving the Green Bond Regulation as part of the broader Company Debt Instrument Registration Regulation, issued by the Financial Regulatory Commission (FRC) (IFC, 2021[95]). This regulation was developed in collaboration with the International Finance Corporation (IFC) and aligns with the internationally recognised Green Bond Principles set by the International Capital Market Association (ICMA) (IFC, 2021[95]). The regulation provides a clear legal framework for the issuance and registration of green bonds by local governments and private issuers. Consequently, in January 2025, the Governor’s Office of the Capital City of Mongolia (MUB) successfully issued Ulaanbaatar’s first municipal green bond through a private placement to the IFC (IFC, 2025[96]). The bond finances a 50-megawatt Battery Energy Storage System in the Baganuur District which will provide up to four hours of daily electricity usage benefitting 25,000 households and supporting future integration of wind and solar energy. This was the first non-sovereign guaranteed municipal bond to a foreign investor in Mongolia, which frees up public funds and establishes a new asset class for attracting investments in sustainable infrastructure (IFC, 2025[96]).
Despite this progress, challenges persist. Mongolia’s high interest rates and the predominance of SMEs in registered businesses hamper access to green finance for infrastructure. Sustainable finance in the private sector remains limited, with green loans remaining well below the 10% target set for 2030 (ADB, 2025[97]). Progress is hampered by a shortage of viable green projects and restricted access to both domestic and international funding, including newer instruments like nature-based and carbon finance (ADB, 2025[97]). Another key barrier is the underdeveloped state of Mongolia’s capital markets, which limits access to long-term finance and reduces the range of instruments available for green investment (ADB, 2025[97]). Institutional capacity is another challenge. Agencies such as the Financial Regulatory Commission and the Bank of Mongolia lack the resources and expertise to fully supervise and support the implementation of green finance principles institutions (Green Climate Fund, 2021[98]).
Mongolia could strengthen its financial sector, which is currently dominated by banks, by developing a strategy that promotes the growth of the non-banking financial sector, expands the use of digital tools to improve access to financial services, and enhances financial market infrastructure such as payment systems (ADB, 2025[97]). This includes supporting institutions like insurance companies, microfinance providers, and savings and credit co-operatives, which can offer more diverse options for borrowing, investing, and saving. Advancing digital financial solutions and upgrading infrastructure will help deepen Mongolia’s capital markets and broaden financial inclusion.
Unlocking private capital will require accelerating the rollout of green SDG bond frameworks and introducing credit enhancement tools such as guarantees and blended finance mechanisms, as outlined in Mongolia’s Sustainable Finance Roadmap (FSC, 2022[89]). These instruments are essential to attract institutional investors and improve the bankability of large-scale green and climate-resilient infrastructure. Their importance was underscored during Mongolia’s 2023 Sustainable Finance Week, where stakeholders emphasised the need to build confidence and liquidity in green debt markets (Sustainable Banking and Finance Network, 2023[99]).
3.4.3. Responsible business conduct framework
Infrastructure development in energy, industry and transport is associated with increased risks related to human rights, labour rights, environmental impacts and business integrity. As governments involve the private sector across the entire infrastructure lifecycle – from planning and financing to delivery, operation, maintenance and decommissioning – Responsible Business Conduct (RBC) plays an increasingly prominent role in the infrastructure sector. With private actors playing a growing role in financing and delivering sustainable infrastructure, attention is shifting to the broader social and environmental impacts of business activities. RBC provides a set of principles to help both public and private stakeholders steer infrastructure development in a more sustainable and responsible manner.
RBC helps improve the sustainability performance of infrastructure investments. By applying RBC principles and standards – particularly risk-based due diligence – companies and investors are better able to identify, prevent and address potential adverse impacts of their infrastructure activities on people, planet and society. Infrastructure projects and their related supply chains can have impacts related to human and labour rights, the environment and climate change, as well as anti-corruption. In this context, the OECD Guidelines for Multinational Enterprises on RBC, together with the Due Diligence Guidance, provide key international standards (OECD, 2018[100]).
Creating the right policy and regulatory environment is essential for governments to promote and enable RBC. The OECD Recommendation on the Role of Government in Promoting RBC underlines that governments should not only develop and implement laws and policies that encourage RBC but also exemplify RBC in their economic and commercial activities. In the infrastructure context, this involves establishing legal frameworks covering human rights, labour rights, environment and anti-corruption as well as implementing state policies on investment promotion and facilitation, public procurement, finance and the governance of state-owned enterprises, as well as efforts to promote meaningful stakeholder engagement and access to remedy (OECD, 2022[101]). Such an enabling environment, in turn, helps countries “keep and attract high quality and responsible investors”.
Under SIPA, the OECD led a review of RBC policies for sustainable infrastructure development in Mongolia (OECD, 2025[58]). Infrastructure in Mongolia in key sectors such as mining, transport and energy is associated with adverse impacts related to issues such as land rights, occupational health and safety, environmental pollution and corruption. The report finds that the country has already taken valuable steps to strengthen the policy environment for RBC. Important measures include the adoption of a National Action Plan on Business and Human Rights (NAP BHR). Building on a National Baseline Assessment, the NAP BHR sets out measures across government to promote RBC. Moreover, Mongolia has strengthened the relevant domestic legal and policy frameworks by acceding to ILO conventions on safety and health in mining and transport and revising its Labour Code; assessing the effectiveness of environmental impact assessments and increasing the focus of these on social impacts; and including business integrity in its national anti-corruption strategy. Mongolia has also created a strong framework for sustainable finance, including through a Sustainable Development Goal (SDG) Finance Taxonomy and establishing requirements for companies’ non-financial disclosures.
Growing private sector involvement into the financing of sustainable infrastructure draws into sharper focus the broader social and environmental impact of business activities. In this context, Responsible Business Conduct (RBC) principles offer a framework to guide both public and private sector actors in supporting sustainable infrastructure initiatives (OECD, 2024[102]).
Responsible business conduct (RBC) helps maximise the sustainability outcomes of infrastructure investments (OECD, 2024[102]). By observing RBC principles and standards and in particular due diligence, companies and investors can identify, address, and account for potential adverse impacts of their infrastructure operations on people, planet and society. For example, infrastructure and related supply chains can have impacts related to respect of human and labour rights, the environment and climate change, and anti-corruption. The OECD Guidelines for Multinational Enterprises on RBC and the associated Due Diligence Guidance are key international standards in this regard (OECD, 2023[103]; OECD, 2018[104]). The relevance of RBC for infrastructure is growing as governments are increasingly involving the private sector across the full infrastructure life cycle from planning and financing to delivery, operation, maintenance, and decommissioning.
Governments can promote and enable RBC by putting in place an enabling policy environment. The OECD Recommendation on the Role of Government in Promoting RBC underlines that governments should enable and encourage RBC through the development and implementation of laws and policies and exemplify RBC in their economic and commercial activities. Of particular relevance to infrastructure, this includes: an appropriate legal framework on human rights, employment and industrial relations, environment and anti-corruption; state policies on investment promotion and facilitation, public procurement, finance and the governance of state-owned enterprises; as well as efforts to promote meaningful stakeholder engagement and access to remedy (OECD, 2022[101]). In turn, such an enabling environment helps countries “keep and attract high quality and responsible investors” (OECD, 2015[105]).
The Government of Mongolia can take further action to strengthen the regulatory and policy environment for RBC in infrastructure investments and use its role as an economic actor to address RBC-related risks and impacts at the infrastructure project-level. Recommendations include to:
Implement the National Action Plan on Business and Human Rights, regularly monitoring progress and using it as a means to raise awareness and facilitate multi-stakeholder dialogue on RBC.
Press forward with social impact assessments to ensure key adverse impacts are considered in preparation of infrastructure projects, notably related to the mining sector.
Promote businesses’ compliance with existing standards, including by ensuring oversight and monitoring services such as labour inspections have sufficient capacity and resources.
Mobilise sustainable finance for infrastructure investments by connecting its sustainable finance efforts with infrastructure financing.
Strengthen RBC expectations for state-owned enterprises and provide them with guidance and support in meeting these expectations.
Enhance the consideration of RBC aspects and RBC due diligence in public procurement under infrastructure projects, building on earlier efforts to promote sustainable procurement.
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← 1. The net effective carbon rate is the sum of Emission Trading Systems (ETS) permit prices, carbon taxes and fuel excise tax, less fossil fuel subsidies.
← 2. Sustainable finance is defined as finance integrating ESG information into the decision-making process of investors and financiers, while definitions of green finance focus on financial products that have a positive climate or other environment-related impact relative to a notional “business as usual” scenario (OECD, 2023[106]).