Pakhnenko Olena, PhD (Economics), Associate Professor of the Department of Financial Technologies and Entrepreneurship, Sumy State University, Sumy, Ukraine

ORCID: 0000-0002-4703-4078
e-mail: o.pakhnenko@biem.sumdu.edu.ua

Zakharkina Liudmyla, PhD (Economics), Associate Professor of the Department of Financial Technologies and Entrepreneurship, Sumy State University, Sumy, Ukraine

ORCID: 0000-0003-1002-130X
e-mail: l.zakharkina@biem.sumdu.edu.ua

Nikonova Inna, student, Sumy State University, Sumy, Ukraine

ORCID: 0009-0001-6844-6290
e-mail: nikonovainna706@gmail.com

ESG Transformation of Ukraine’s Banking Sector under Institutional Convergence of Sustainable Finance Policies

Abstract. Introduction. The institutional convergence of sustainable finance policies is changing the role of banks in allocating financial resources and requires environmental, social and governance factors to be incorporated into strategy, risk management, lending, portfolio monitoring and public disclosure. For Ukraine, this process is shaped by the need to align with the EU Taxonomy, CSRD, ESRS and European prudential requirements while financing economic recovery under wartime and post-war constraints.

Purpose. The study aims to deepen the theoretical foundations of the ESG transformation of Ukraine’s banking sector and to substantiate its functional and institutional model under the convergence of Ukrainian and EU sustainable finance policies.

Results. It was established that institutional convergence should be assessed not by the number of adopted regulations but by the extent to which ESG requirements change internal banking processes. A sequential institutional chain was substantiated: European standards – national regulation – internal bank policies – ESG data – risk assessment – financial decisions – disclosure – regulatory and market control. A functional ESG transformation model comprising five interrelated contours was developed: regulatory and strategic, informational, risk-related, product and financing, and reporting and control. The analysis identified systemic gaps in taxonomy-based classification, standardisation and verification of borrower data, portfolio-level ESG assessment, and measurement of the environmental and social effects of financing. The PrivatBank case confirmed a gradual shift from declarative commitments to operational practices. In 2025, more than 600 enterprises received UAH 11.3 billion for energy independence, while 12.1 thousand small and medium-sized business clients obtained UAH 24.5 billion under international support programmes. However, limited disclosure of the share, sectoral composition and risk profile of sustainability-aligned assets remains a sector-wide constraint.

Conclusions. Effective ESG transformation requires coordinated development of regulation, data infrastructure, risk-based supervision, sustainable financial instruments and verification mechanisms. The proposed model presents ESG transformation as a complete management cycle in which regulatory requirements are converted into data flows, risk assessments, financing parameters and verifiable reporting. This approach strengthens the capacity of banks to serve as an institutional channel for the sustainable recovery of Ukraine’s economy while reducing greenwashing risks.

Keywords: ESG transformation, banking sector, sustainable finance, institutional convergence, ESG risks, banking regulation, sustainability reporting, greenwashing.

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