This study aims to investigate the impact of environmental, social and governance (ESG) performance on financial distress among energy sector firms in developing Asia Pacific economies and develops and tests the arguments that Capital intensity is a structural contingency that shapes the risk-mitigating role of ESG in these financially vulnerable, transition-exposed firms.
Using the Bloomberg database for four Asia-Pacific countries with the highest economic growth over the past 20 years, the authors analyzed 306 firm reports with year-long observations from 2015 to 2023 through regression analysis.
The results indicate that the ESG–financial distress relationship is not uniform across pillars and depends on capital intensity. Social and governance performance are associated with lower financial distress risk, while environmental performance is not significant in the baseline model. Capital intensity strengthens the environmental effect but weakens the social effect, whereas the governance interaction is not significant. These findings support a structurally contingent view of ESG and financial distress.
Energy firms should tailor ESG strategies to their capital intensity levels. Capital-intensive firms should prioritize environmental investments, while others should focus on strategic social initiatives. Governance systems should adapt to asset complexity, support ESG regulatory frameworks and consider capital structure in risk management.
The study’s originality lies in showing that the ESG–financial distress relationship is not uniform, but conditional on capital intensity and different across ESG pillars. Using developing Asia-Pacific energy firms as a transition exposed and capital-intensive setting, the paper offers a more nuanced explanation of when and how ESG contributes to financial resilience.
