With an emphasis on default likelihood, this research examines the impact of Environmental, Social, and Governance (ESG) policies on credit risk (CR). The data from 147 non-financial firms listed on the Stock Exchange of Thailand (SET) between 2018 and 2022, resulting in 437 firm-year observations after excluding incomplete records. Regression models with robust standard errors are applied to ensure reliable estimation. Results show that higher ESG performance is generally associated with lower default risk, supporting the view that ESG enhances financial stability. However, the relationship is non-linear, as ESG benefits decline at higher levels and may reverse beyond a threshold, indicating a U-shaped effect driven by inefficiencies and resource misallocation. Turning-point analysis confirms that this threshold lies within the sample range, while firm size significantly moderates the relationship, with larger firms exhibiting distinct ESG–credit risk dynamics. Endogeneity concerns are addressed using System Generalized Method of Moments (System GMM), strengthening causal interpretation. Robustness checks, including winsorization and sensitivity analysis, confirm the stability of results. Findings highlight that ESG influences credit risk in a conditional and non-linear manner, emphasizing the importance of balanced and strategically optimized ESG investment decisions in emerging market settings where institutional conditions vary across firms and governance structures.
Sritanee et al. (2026) studied this question.