ASSESSING THE EFFECTIVENESS OF INTERNAL CONTROL WITH ESG RISKS: A MODEL FOR THE BANKING SECTOR OF KAZAKHSTAN

Abstract. The article examines the effectiveness of internal control systems in the banking sector of Kazakhstan with regard to the integration of ESG risks, which are becoming a key component of sustainable finance and modern risk management. Strengthening global regulatory frameworks, the rise of responsible investment, and increased stakeholder expectations require banks to adopt new approaches that extend internal control beyond traditional financial and operational risk categories. The study analyzes international practices (OECD, IMF, BIS, World Bank), evaluates the current level of ESG maturity in Kazakhstan’s second-tier banks, and identifies methodological gaps that hinder the full integration of environmental, social, and governance risks into internal control procedures. The methodological basis includes a combination of theoretical analysis, risk assessment tools, expert interviews, content analysis of non-financial reports, and the construction of an integrated ESG-control model. The proposed model includes five interrelated blocks: ESG control environment, ESG risk assessment, control activities, information and communication, and monitoring and evaluation. To quantify the results, an integrated ESG–CI index was calculated. Results show significant heterogeneity across banks: only 12% demonstrate a high level of ESG integration, while environmental risk control remains the weakest component. Digitalization and the use of RegTech solutions are shown to be strong predictors of ESG-control effectiveness. The findings highlight the need to modernize internal control systems, standardize ESG methodologies, strengthen climate-risk assessment, and enhance transparency of non-financial reporting. The proposed model is applicable for Kazakhstan’s banking system and can support the transition toward sustainable finance.