(Adds details of bond, background)

BEIJING, March 17 (Reuters) – Mongolia’s largest commercial bank, Khan Bank, has issued the country’s first green bond, according to a joint statement from the bank and development lender International Finance Corporation (IFC) on Friday.

The proceeds of the $60 million, five-year bond are earmarked for increasing the bank’s lending to environmental projects in sectors including renewable energy, energy efficiency, and climate-smart agriculture in Mongolia, according to the statement.

Khan Bank’s inaugural green bond was privately placed, and received $35 million from Dutch development bank FMO, $15 million from IFC and $10 million from US-based Microvest Capital Management, said the statement.

The green aspect of the bond was set by a clause governing the use of its proceeds, a spokesperson for IFC told Reuters. The funds had to be put towards lending to specific eligible environmental projects.

The investors hope the transaction will support Mongolia’s goal to increase green lending from the current 1.4% of all banking sector lending to 10% by 2030, said IFC, which is part of the World Bank Group.

Mongolia had committed to reducing greenhouse gas emissions by 22.7% by 2030, the statement noted.

Landlocked Mongolia faces environmental issues including sandstorms in the southern Gobi desert and heavy air pollution in the capital, Ulaanbaatar, due to use of coal for heating in the country’s freezing winters.

The issuance “marks an historic move for Mongolia and (is) vital to help the country deliver on its climate ambitions,” said Allen Forlemu, regional industry director of the Asia-Pacific financial institutions group at IFC.

With the assistance of IFC, Mongolian financial regulators issued regulations in 2021 to support the issuance of green bonds.

While the global market for green debt instruments has grown substantially in recent years to around $500 billion per year, emerging markets made up less than 20% of that in 2021. Chinese issuers accounted for 63% of funds raised by emerging market green borrowers in that year, IFC said. (Reporting by Andrew Hayley; Editing by Muralikumar Anantharaman and Bradley Perrett)