Purpose This study explores the effect of environmental, social and governance (ESG) performance on firms' capital structure decisions under sustainability uncertainty in the Asian market. This study aims to explore whether firms with stronger ESG profiles are better equipped to maintain financial stability, particularly in managing debt when faced with climate-related and policy-driven sustainability risks. Design/methodology/approach This research utilizes panel data regression models, incorporating interaction terms and multiple robustness tests. The analysis uses data from listed firms in Asia between 2014 and 2023, combining ESG scores, the ESG Uncertainty Index and climate risk indicators (physical and transition risk). Fixed-effect estimations and one-step first-difference GMM are employed to control for potential endogeneity and firm-specific heterogeneity in capital structure dynamics. Findings Results show that firms with high ESG scores prefer to maintain lower leverage structures under uncertainty. Findings further confirm the stronger negative relationship between sustainability uncertainty and leverage for high ESG firms, highlighting the moderating role of ESG performance in this relationship. Originality/value This paper takes a modestly novel approach by integrating a country-level ESG uncertainty index into a firm-level capital structure analysis for Asian markets.
John et al. (2026) studied this question.