DEVELOPMENT OF AN INTEGRATED ESG ASSESSMENT OF SOCIAL AND ENVIRONMENTAL RISKS FOR FINANCIAL INSTITUTIONS

Abstract

This article addresses the integration of environmental, social, and governance (ESG) factors into the operations of banking institutions as a key element of modern risk management and sustainable finance strategies. In Ukrainian academia, the issue of sustainable financing is actively being developed in the context of European integration and NBU policy. However, most known models are geared toward stable markets and do not take into account extreme conditions, such as military action and large-scale destruction of infrastructure, which creates a gap in methodological support. The purpose of the study is to develop an integrated model for assessing ESG related risks and opportunities, thereby enhancing the quality of credit and investment decision making while ensuring compliance with international reporting standards. The methodological framework of the proposed model includes the design of a comprehensive system of indicators for evaluating ESG factors in credit portfolios and investment projects, the formulation of a weighted aggregation method for environmental, social, and governance dimensions, and the adaptation of international standards (ESRS, UNPRI, OECD) to the national context of Ukraine. The model introduces an integrated ESG_score formula that enables quantitative assessment of risks and opportunities, with weighting coefficients determined through expert evaluation and statistical validation. validation. The implementation of international standards in Ukraine is complicated by a lack of verified data, especially in the small and medium-sized enterprise (SME) segment. To address this issue, it is proposed to use industry proxy data and integrate banking systems with state registries (e.g., data on environmental permits or the status of damaged property). The practical significance of the study lies in providing Ukrainian banking institutions with a tool to reduce credit risks, improve transparency, and align with global sustainability requirements, while also facilitating access to green financial resources. The results can be applied to the development of internal bank policies, the enhancement of regulatory frameworks, and the advancement of sustainable development strategies within the financial sector.