The Impact of ESG Activities on the Financial Stability of Energy Firms in Developing Asia Pacific

This study investigates the impact of Environmental, Social, and Governance (ESG) performance on the financial distress of energy companies in developing Asia-Pacific countries. Using panel data from 30 firms over the 2014–2023 period, the research applies fixed effects estimation and the Generalized Method of Moments (GMM) for robustness checks. The findings reveal a positive relationship between the environmental pillar (ENV) and financial distress, suggesting that increased environmental activities may create short-term financial pressure—particularly under the legitimacy demands of global climate commitments. In contrast, the social (SOC) and governance (GOV) pillars show negative associations with financial distress, emphasizing their role in strengthening stakeholder relationships and enhancing firm stability. By highlighting how ESG components differentially influence financial vulnerability, this study contributes to the literature through a combined lens of stakeholder theory and legitimacy theory. It offers practical implications for policymakers, sustainability-oriented investors, and corporate leaders seeking to navigate climate transition risks. Importantly, the findings underscore ESG adoption as a strategic path for reducing stranded asset exposure and achieving financial resilience—thereby directly supporting Sustainable Development Goals, particularly SDG 13 (Climate Action) and SDG 12 (Responsible Consumption and Production) . Energy companies in developing economies can leverage ESG practices not only to safeguard financial performance, but also to catalyze broader contributions toward a just and sustainable energy transition.