Infrastructure Policy Review of Ukraine

7. Aligning infrastructure investments with sustainability

Abstract

This chapter sets out the policy foundations required to integrate sustainability considerations into Ukraine’s infrastructure investments. It underscores that mainstreaming sustainability and resilience is essential not only for meeting EU integration objectives but also for improving project bankability and reducing long-term fiscal risks. The chapter emphasises that environmental and social considerations can no longer be treated as compliance exercises but must be embedded across the full infrastructure lifecycle. The chapter also argues that Ukraine must address its growing exposure to climate hazards by embedding routine climate‑risk assessments and prioritising adaptation investments.

Ukraine’s assets, infrastructure, and society are increasingly vulnerable to climate change, with risks varying across regions and population groups. Climate hazards, including urban and coastal area floods as well as wildfires are impacting critical infrastructure systems. Risks of wildfires resulting from drought episodes, combined with increasing heat, have risen in Ukraine over the past decade (UK Met Office, 2021[1]). Flooding has damaged highways, bridges and train tracks, leading to operational disruptions and higher maintenance costs. Ports are also vulnerable to more frequent storms and extreme rainfall events, as well as rising sea levels, while more intense heatwaves pose a threat to the operation of rail and road transport networks.

Despite the challenges associated with Russia’s full-scale invasion, which is also causing severe environmental damages by exacerbating forest fires, damaging carbon sinks, and destroying clean energy sources, Ukraine is committed to taking steps to mitigate the adverse effects of climate change (Keim and Sydorovych, 2024[2]). In its Second Nationally Determined Contribution (NDC), Ukraine has established the objective to increase the share of renewable energy in gross final energy consumption from 17% in 2024 to 27% in 2030 as well as a legally binding goal to achieve climate neutrality by 2050 (CMU, 2025[3]). The country is also planning to phase out coal-fired power generation by 2035.

Ukraine is taking action to strengthen its sustainable finance framework and integrate environmental and social considerations into project preparation. Through its sustainable finance development policy, the country has defined a phased approach to develop a common language around sustainability risks and disclosure requirements for financial institutions, in line with the EU acquis. Recent improvements to project preparation practices have also clarified requirements for environmental and social impacts to be included as part of feasibility studies for public investment projects including PPPs, building on Ukraine’s legal framework for EIAs.

Through its communication on climate change adaptation to the United Nations Framework Convention on Climate Change (UNFCCC) and its National Adaptation Strategy (NAP) Ukraine has acknowledged the need to integrate adaptation considerations into strategic planning at the national, and subnational levels. It has also committed to accelerate adaptation action across priority sectors, including infrastructure and transport.

7.1. Sustainable finance, and environmental and social considerations

Prior to Russia’s full-scale invasion, Ukraine had been making progress in developing its sustainable finance framework. In 2021, the NBU published its Sustainable Finance Development Policy 2025 aimed at integrating sustainability considerations into the country’s financial sector (National Bank of Ukraine, 2021[4]). The Strategy outlined five key objectives: 1) improving corporate governance in banks and non-bank financial institutions taking into account environmental, social and governance (ESG) factors; 2) introducing requirements for environmental and social risk management in financial institutions regulated by the NBU; 3) introducing ESG disclosure standards for financial institutions; 4) taking measures to increase financial literacy of the public about the development of sustainable finance in Ukraine; and 5) taking climate change into account while pursuing financial stability.

The Policy’s Implementation Roadmap had originally established a timeline for financial institutions and non-bank financial institutions to undertake sustainability disclosures by the end of 2024. In September 2024, however, NBU announced its decision to revise and update the Sustainable Finance Development Policy to: 1) take account of the impact of Russia’s full-scale invasion; 2) update some of the original measures to align with the latest EU acquis; and 3) better respond to the new challenges facing the financial community, and postponed implementation to the end of 2027 (National Bank of Ukraine, 2024[5]). The revised Sustainable Finance Development Policy streamlined objectives into two main areas: 1) developing an internal ESG risk management framework for NBU; and 2) developing an ESG risk management framework for the financial sector regulated by NBU. The second objective involved a phased approach focussed on the development of a “common language” around sustainability risks and disclosure requirements for financial institutions, in line with the EU Sustainable Finance Disclosure Regulation, its Corporate Sustainability Reporting Directive and the EU Taxonomy Regulation. Alignment with the EU sustainable finance frameworks has been further confirmed by the Order of the CMU On the approval of the Strategy for the introduction of sustainable development reporting by enterprises (Cabinet of Ministers of Ukraine, 2024[6]). The publication by the NBU of a white paper of ESG risk management in Ukraine’s financial sector contributed to maintain reform momentum and outlined a phased approach to implement ESG requirements for the financial sector throughout the 2025-2030 period (National Bank of Ukraine, 2025[7]). A first step for its implementation was the approval of amendments to the NBU’s Methodological Recommendations on the Organization of Corporate Governance in Ukrainian Banks, which established that Ukrainian banks would need to develop and ESG risk management strategy by July 2026 (National Bank of Ukraine, 2026[8]). Such strategy would need to present an initial assessment of the impact of ESG risks on the financial institution’s business model and outline a set of ESG commitments, metrics, and performance indicators applicable to the institution’s business processes and prtfolios, as well as mechanisms to monitor their implementation.

Non-financial reporting obligations in Ukraine currently arise from several horizontal regulatory regimes including corporate non-financial reporting for large companies and public-interest entities, environmental impact assessments and disclosure obligations tied to projects supported by multilateral or regional development banks. In the case of corporate non-financial reporting, obligations are derived from the Law On Accounting and Financial Reporting in Ukraine and require large companies and public-interest entities (including major infrastructure operators, utilities, and regulated monopolies) to prepare annual Management Reports, which include non-financial information related to: environmental performance, social and labour issues, anti-corruption matters and corporate governance (Verkhovna Rada of Ukraine, 2024[9]; Cabinet of Ministers of Ukraine, 2019[10]). This requirement does not establish mandatory alignment with international ESG standards (e.g. Global Reporting Initiative, Sustainability Accounting Standards Board, Taskforce on Climate‑related Financial Disclosures).

With respect to EIAs, recent improvements to the regulatory framework around project preparation following the adoption of Resolution 527 have clarified requirements to undertake feasibility studies for public investment projects including PPPs (see Section 5.1). The Resolution establishes that full feasibility studies are mandatory for projects whose costs exceed USD 1.2 million and are meant to include assessments of environmental and social impacts as part of their economic justification. Law 4 510‑IX on PPPs adopted in 2025 also highlights the need to undertake environmental impact assessments in line with the procedures established in Ukraine’s Law on Environmental Impact Assessment (EIA). The Law on EIA constitutes the main legally binding sustainability reporting mechanism applicable to new infrastructure projects. It requires the preparation of an EIA report covering various aspects such as: assessment of biodiversity, habitats and ecosystems; water, air and soil impacts; pollution and waste‑management measures; risks to public health; climate‑change impacts (where relevant); mitigation and monitoring plans; public consultations and stakeholder engagement.

The annual PPP monitoring report submitted to the Ministry of Economy also includes non-financial reporting categories around environmental and social obligations, usually derived from the EIA legislation or sector-specific permits. Ukraine’s regulatory framework around EIA also sets provisions for ex-post environmental monitoring and audits. These audits seek to assess the compliance of an asset’s operation with the requirements of environmental legislation, prevent or minimise negative environmental impacts, determine measures to eliminate violations and ensure transparent environmental reporting. Such audits can be conducted by independent accredited entities or by public authorities and are certified by the Ministry of Economy, Environment and Agriculture of Ukraine.

Even in the absence of an explicit Ukrainian ESG PPP framework, PPPs often also follow higher ESG standards due to MDB involvement in their financing, which requires implementation of MDB environmental and social framework requirements. Technical assistance for project preparation can therefore provide an important avenue to build capacity around environmental and social impact assessments in Ukraine and mainstream such practices at the infrastructure project-level, including when developing concessions (see Box ‎7.1).

Box ‎7.1. Environmental and social impact assessments in Ukraine’s Olvia Specialised Seaport Concession

In August 2020, the Ukrainian Government signed a concession agreement with QTerminals, one of the leading port operators of Qatar. According to the Concession Agreement, QTerminals Olvia would invest approximately UAH 3.4 billion (~EUR 78 million) in the infrastructure of the port.

The Olvia Seaport concession was brought forward in collaboration with the IFC and EBRD and included a number of environmental obligations for the concessionaire to manage environmental and social impacts in accordance with international best practice. Environmental and Social Impact Assessments were developed in accordance with the IFC Performance Standards and an environmental and social management system was put in place.

Source: The State Organization Agency on Support Public-Private Partnership (n.d.[11]), https://pppagency.gov.ua/project/olvia-specialized-seaport-concession/.

Ukraine’s commitment to align with the EU’s Sustainable Finance Disclosure Regulation, its Corporate Sustainability Reporting Directive and the EU Taxonomy Regulation is a strategic objective associated with the country’s EU integration process which has been formally approved by the CMU.

The EU’s Ukraine Investment Framework (see Section 4.3) has also set a target to ensure that at least 20% of supported investments are green, which will be facilitated by closer alignment with EU sustainable finance frameworks as well as the development of a pipeline of projects that aligns with the EU’s Taxonomy Regulation criteria (European Commission, 2025[12]).

A clearer roadmap and timeline for the implementation of EU’s Sustainable Finance Disclosure Regulation, its Corporate Sustainability Reporting Directive and the EU Taxonomy Regulation as soon as conditions allow will need to be considered, as it may take several years for industries to understand such requirements and implemented them in a manner that does not disrupt their business.

Regarding reporting at the project level, efforts should not be limited to EIAs but should be part of a process that extends to the full lifecycle of the infrastructure asset and adapts to the phase that the project is in. Social risks should also be better considered in terms of reporting requirements as this can contribute to ensure that infrastructure assets have a positive impact on communities in areas such as labour, accessibility, inclusivity, and land management. Having robust non-financial reporting is important as environmental and social risks can give rise to negative impacts in the future and become a source of contingent liabilities.

7.2. Climate risk and adaptation

Investing in climate resilient infrastructure is critical for Ukraine, as urban floods and wildfires are considered high risk and climate change is expected to increase risk of extreme weather events (The World Bank, 2025[13]). Climate change makes not only sudden weather events more extreme, but also slow onset events have a lasting impact if not addressed. Ukraine submitted its national adaptation plans to the UNFCCC in 2024, which estimated that losses from droughts, wildfires and floods had reached USD 1.3 billion over the 2016-2020 period (Government of Ukraine, 2024[14]). There has been some research over the years that having investment upfront to prevent losses may be more cost effective than ex post weather events. Thus, having a culture of climate risk assessment and financing could mean better risk management for infrastructure assets (Hallegatte, 2019[15]).

Between 2000 and 2020, Ukraine faced repeated extreme weather events, with floods generating the highest economic losses. Prolonged rainfall triggered major flooding in Western Ukraine in 2002, 2008 and 2020, causing an estimated USD 1 billion in damages, primarily to infrastructure along river basins. In 2020, a combination of drought conditions and human ignition led to wildfires that caused an additional USD 175 million in losses. Other severe events, including the 2007 winter storm Kyril and a 2017 tornado and heavy hail, damaged residential and public infrastructure. In the case of the transport sector, the main impacts have been damages to physical assets such as roads, bridges and train tracks. These impacts underscore the importance of integrating climate resilience into infrastructure design, maintenance and investment planning.

In 2021, Ukraine adopted the Environmental Security and Climate Change Adaptation Strategy of Ukraine by 2030 (NAS 2030), which represented the first national strategy on adaptation measures (Government of Ukraine, 2021[16]). The strategy highlights the challenges of mainstreaming climate resilience into Ukraine’s policy frameworks and how they can be addressed. Challenges include: the lack of strategic planning of adaptation leading to ad hoc responses; insufficient integration of climate change adaptation into policies at different levels of government; lack of technical capacity to systematically measure climate risks; insufficient awareness among civil society, business and government on the need to implement climate adaptation measures, and lack of financial resources to implement them. The strategy also identifies ten key priority sectors for adaptation, which include transport and infrastructure, and the need to develop risk and vulnerability assessments to climate change in these sectors, as well as sectoral action plans on adaptation to climate change.

The European Union Directive 2014/52/EU strengthened the focus on climate change adaptation and resilience in the screening, scoping and assessment phases of projects as part of mandatory EIAs for certain large‑scale projects. Some countries have also leveraged EIAs to assess the climate resilience of infrastructure projects, making such assessments mandatory and requiring climate resilience certification to begin construction works (G20/OECD, 2024[17]).

Ukraine has experienced severe weather events that have caused high levels of economic losses. However, preventing them and mitigating their impacts can be challenging, as climate adaptation is notoriously difficult to finance given its lack of direct contributions to revenue streams from the measures (G20/OECD, 2024[17]). Inclusion of climate risk assessment in routine procedures is the main way by which to mainstream climate resilience. This can take place through inclusion in EIAs or by requiring reporting on climate risk assessment and adaptation measures at the project level. Ukraine should also consider earmarking public investment towards climate adaptation, with a particular view of retrofitting and upgrading existing infrastructure. While new infrastructure assets could benefit from EIAs and reporting, existing assets are often overlooked in their need to adapt to the current climate risks. As public investments will be necessary to retrofit existing assets, it is important that the government plans and anticipates payouts for these upgrades to take place in order to avoid the realisation of economic losses when weather events cause disruption. This is particularly relevant for transport infrastructure, where service disruptions can generate significant economic and social costs.

7.3. Policy recommendations

Strengthen project-level non-financial reporting to the full lifecycle of infrastructure, moving beyond stand-alone EIA compliance. For reporting at the project level, efforts should not be limited to EIAs but should be part of a process that extends to the full lifecycle of the infrastructure asset and adapts to the phase that the project is in. Social risks should also be better considered in terms of reporting requirements as this can contribute to ensure that infrastructure assets have a positive impact on communities in areas such as labour, accessibility, inclusivity, and land management. Having robust non-financial reporting is important as environmental and social risks can give rise to negative impacts in the future and become a source of contingent liabilities.

Align national sustainable finance frameworks with EU standards. A clearer roadmap and timeline for the implementation of EU’s Sustainable Finance Disclosure Regulation, its Corporate Sustainability Reporting Directive and the EU Taxonomy Regulation should be discussed as soon as conditions allow, as it may take several years for industries to understand such requirements and implement them in a manner that does not disrupt their business.

Embed climate risk assessments in routine procedures to mainstream climate resilience in infrastructure development. Inclusion of climate risk assessment in routine procedures constitutes the main channel to mainstream climate resilience considerations when developing infrastructure in Ukraine. This can take place through inclusion in EIAs or by requiring reporting on climate risk assessment and adaptation measures at the project level.

Allocate targeted public investment for climate adaptation. Ukraine should consider earmarking public investment towards climate adaptation, with a particular view of retrofitting and upgrading existing infrastructure.

References

[6] Cabinet of Ministers of Ukraine (2024), On approval of the Strategy for the introduction of sustainable development reporting by enterprises, https://zakon.rada.gov.ua/rada/show/1015-2024-%D1%80#n125.

[10] Cabinet of Ministers of Ukraine (2019), Order on the approval of Methodological recommendations for preparing a management report, https://zakon.rada.gov.ua/rada/show/v0982201-18#Text.

[3] CMU (2025), Second Nationally Determined Contribution of Ukraine to the Paris Agreement, https://unfccc.int/sites/default/files/2025-11/2%20Ukraine%20NDC2_adj_v2.pdf.

[12] European Commission (2025), Ukraine Investment Framework, https://enlargement.ec.europa.eu/european-neighbourhood-policy/countries-region/ukraine/ukraine-investment-framework_en#first-investment-agreements-signed-at-ukraine-recovery-conference-2024 (accessed on  July 2025).

[17] G20/OECD (2024), G20/OECD Report on Approaches for Financing and Investing in Climate Resilient Infrastructure, OECD Publishing, Paris, https://www.oecd.org/content/dam/oecd/en/publications/reports/2024/07/g20-oecd-report-on-approaches-for-financing-and-investing-in-climate-resilient-infrastructure_488b2c4a/8f6d436a-en.pdf.

[14] Government of Ukraine (2024), Ukraine’s Climate Change Adaptation Communication to UNFCCC, https://unfccc.int/sites/default/files/2025-05/Ukraine%201st%20Adaptation%20Communication.pdf.

[16] Government of Ukraine (2021), Strategy for Environmental Security and Adaptation to Climate Change for the period until 2030, https://zakon.rada.gov.ua/laws/show/1363-2021-%D1%80#n17.

[15] Hallegatte, S. (2019), “Lifelines”, https://doi.org/10.1596/978-14648-1430-3.

[2] Keim, G. and M. Sydorovych (2024), Policies to Address Climate Change: Ukraine, https://www.imf.org/en/-/media/files/publications/selected-issues-papers/2024/english/sipea2024001.pdf.

[8] National Bank of Ukraine (2026), Amendments to the Methodological Recommendations on the Organization of Corporate Governance in Banks of Ukraine, https://bank.gov.ua/ua/legislation/Decision_03022026_31-rsh.

[7] National Bank of Ukraine (2025), White Paper on the management of ESG risks in the financial sector, https://bank.gov.ua/admin_uploads/article/Bila_knyga_2025_fin.pdf?v=16).

[5] National Bank of Ukraine (2024), Sustainable Finance Development Policy 2024, https://bank.gov.ua/admin_uploads/article/ESG_strategy_2024_public_eng.pdf?v=9.

[4] National Bank of Ukraine (2021), Sustainable Finance Development Policy 2025, https://bank.gov.ua/admin_uploads/article/Policy_rozvytok-stalogo-finansuvannja_2025_en.pdf?v=7.

[11] The State Organization Agency on Support Public-Private Partnership (n.d.), “Olvia” Specialized Seaport Concession, https://pppagency.gov.ua/project/olvia-specialized-seaport-concession/.

[13] The World Bank (2025), Climate Change Knowledge Portal - Ukraine, https://climateknowledgeportal.worldbank.org/country/ukraine/vulnerability (accessed on  February 2025).

[1] UK Met Office (2021), Climate Change Impacts for Ukraine, https://www.metoffice.gov.uk/binaries/content/assets/metofficegovuk/pdf/services/government/met-office_climate-change-impacts-for-ukraine_report_08dec2021_english.pdf.

[9] Verkhovna Rada of Ukraine (2024), Law on Accounting and Financial Reporting, https://zakon.rada.gov.ua/laws/show/996-14.?lang=en#Text.