Legal Alert: Environmental, Social, Governance (ESG) and Carbon Credit
INTRODUCTION
In recent years, Environmental, Social, and Governance (ESG) frameworks have evolved from voluntary corporate social responsibility initiatives into a central strategic objective for global businesses, investors, and policymakers. Within ESG, the ‘’Environmental’’ (E) pillar–specifically climate change mitigation and the reduction of human-induced carbon emissions–holds a central position in the context of carbon credits. Driven by tightening regulatory mandates, shifting consumer expectations, and escalating environmental risks, business entities worldwide are establishing targets to achieve Net Zero greenhouse gas emissions.
- E (Environmental): Climate change adaptation, energy efficiency, waste management, biodiversity preservation.
- S (Social): Occupational health and safety, labor rights, human capital development, diversity and inclusion, and community engagement.
- G (Governance): Board independence, business ethics, anti-corruption policies, shareholder rights, and transparent disclosure.
ESG provides a structured approach to evaluating environmental impacts, social responsibility, and corporate governance. Adopting ESG practices can enhance long-term financial performance, strengthen corporate reputation, mitigate systemic risks, and improve market competitiveness.
Mongolia is actively integrating ESG into its legal and regulatory framework. Consequently, on March 23, 2022, the Financial Regulatory Commission (FRC) revised the Corporate Governance Code. Subsequently, in August 2022, the FRC approved the ESG/Sustainability Reporting Guidelines. This serves as a benchmark for both public and private entities to evaluate and report their ESG practices.
