Environmental Funds in ESG Governance: Innovative Mechanisms of Fiscal Sustainability of Communities under Martial Law

Abstract

The article reveals theoretical and practical foundations of environmental funds, including the State Environmental Protection Fund and local environmental protection funds, within the ESG governance framework as a mechanism for strengthening the fiscal resilience of territorial communities under martial law in Ukraine. It argues that the ongoing transformation of public finance, combined with escalating environmental challenges, has increased the importance of integrating environmental, social, and governance (ESG) principles into local budget planning and public resource allocation. The analysis covers regulatory, institutional, and organizational framework governing the operation of environmental protection funds within local budgets and evaluates their role in enhancing the financial capacity of territorial communities under conditions of heightened fiscal instability. It is emphasized that the wartime conditions require adaptive public financial management mechanisms capable of balancing immediate socio-economic needs with long-term environmental priorities. Scholarly approaches to interpreting the concept of fiscal resilience are synthesized, with identifying its key dimensions in the context of martial law, including the ability to ensure the uninterrupted financing of essential public expenditures, resilience to external shocks, and the efficient management of limited financial resources. The findings demonstrate that integrating local environmental protection funds into the ESG governance framework lays the institutional foundation for a comprehensive mechanism combining environmental financing instruments, strategic planning, and institutional coordination to enhance the fiscal resilience of territorial communities. The main challenges for the operation of environmental funds in Ukraine, and strategic directions for improving their operative mechanisms are outlined. The author substantiates the need to develop an integrated ESG-based mechanism for strengthening the fiscal resilience of territorial communities as a comprehensive public financial management framework aimed at promoting the environmental security, social stability, and economic efficiency under martial law.