Climate Change, Finance, and Uncertainty Effects on Sustainable Development: The Role of <scp>ESG</scp> Indicators in South Asia

ABSTRACT This paper examines the impact of climate change, climate finance and climate uncertainty on sustainable development while considering the moderating role of ESG factors. Using data ranging between 2000 and 2023 for South Asian countries facing global warming challenges, this study employs multiple diagnostic tests leading to the application of PMG‐ARDL short‐ and long‐term models. Additionally, ESG indicators are measured using constructed indices through PCA analysis based on unsupervised machine learning approach. The finding reveals that climate change and climate uncertainty negatively affect sustainable development, showing that environmental degradation and climate unpredictability undermine long‐term development. Despite having climate funds to cope with the challenges posed by climatic changes, South Asian countries fail to achieve sustainable development targets due to bad governance. Policy makers can streamline the use of climate finance for attainment of SDGs targets. New structural reforms in terms of utilizing climate finance and implementing ESG frameworks are indispensable to deal with climatic changes and uncertainties. This work is a progressive study, which uniquely examines climatic changes and climate finance effect on sustainable development of South Asian countries. It also distinctively analyzes the role of ESG indicators between the climate‐sustainability nexus. Methodologically, it is novel in construction of ESG indices for sample countries.