<p>This study examines whether, and under what institutional conditions, environmental, social, and governance (ESG) practices mitigate firm-specific risk. Drawing on legitimacy and stakeholder perspectives, the analysis emphasizes how country-level institutional quality—proxied by corruption and economic development—conditions the effectiveness of ESG reporting and ESG performance. Using firm-level data from publicly listed companies across Asia-Pacific emerging markets, we investigate the relationship between ESG engagement and idiosyncratic stock return volatility across heterogeneous institutional environments. The results show that while ESG engagement is generally associated with lower firm-specific risk, its effectiveness is strongly context-dependent. In high-corruption environments, ESG reporting loses credibility, limiting its risk-mitigating role. In contrast, higher levels of economic development strengthen the impact of ESG performance, reinforcing its association with reduced firm-specific risk. Further analysis reveals heterogeneous effects across the environmental, social, and governance pillars, highlighting the context-specific nature of ESG effectiveness. Overall, this study contributes to the ESG–risk literature by demonstrating the central role of institutional quality in shaping ESG outcomes in emerging markets and offers policy-relevant insights for regulators, investors, and corporate decision-makers evaluating ESG as a risk management tool.</p>