<b>ESG and Firm-Specific Risk in the Australian Energy Sector: Evidence from ASX Companies</b>

This study investigates the effect of environmental, social, and governance (ESG) performance on Australian energy firm-specific risk, a critical sector with exposure to both market risk and sustainability. Based on balanced panel data of 20 ASX-listed energy firms between 2020 and 2024, firm-specific risk is proxied by idiosyncratic volatility measures (VOL-360 and VOL-200). The study uses fixed effects panel regressions, based on Hausman, Wald, and robust tests. The results confirm that ESG performance significantly affects firm-specific risk, though the effect varies with subdimensions. Social score reduces volatility, evidencing higher investor confidence in socially responsible firms. Environmental and governance scores are shown to have conflicting or destabilizing effects across different model specifications. These results suggest that, in the Australian market, investors place larger importance on social performance than on environmental and governance aspects. The findings emphasize the need for regulators to ensure stricter ESG disclosure levels and managers to reinvigorate social norms as means of reducing firm risk and enhancing market stability.