This study examines the role of Environmental, Social, and Governance (ESG)
practices in mitigating corporate insolvency risk. Building on an extensive review
of 69 empirical studies spanning 2005–2025, the article synthesises evidence on
how ESG initiatives influence firm risk, including insolvency risk, earnings
volatility, and broader financial and operational exposures. The literature indicates
that strong ESG performance enhances operational efficiency, fosters stakeholder
trust, reduces litigation risk, and facilitates access to external capital markets,
collectively stabilising cash flows and lowering insolvency risk. While leverage
remains a key determinant of insolvency risk, ESG primarily operates through
cash flow channel, highlighting its distinctive contribution to corporate resilience.
The study further identifies firm-level moderators—including CEO duality, board
gender diversity, family ownership, stewardship practices, and financial
constraints—that shape the effectiveness of ESG in reducing risk. The article
proposes an integrated framework that captures these interrelated channels and
moderators, offering a comprehensive understanding of how ESG practices
contribute to insolvency risk mitigation across diverse industries and geographies.
By synthesising theoretical perspectives, including stakeholder theory,
resource-based view, signalling theory, and risk management theory, the study
provides actionable insights for regulators, policymakers, investors, and corporate
managers seeking to enhance firm stability and long-term value through ESG
integration.