This study examines the impact of Environmental, Social, and Governance (ESG) performance on financial distress, with a particular focus on the moderating effect of the cost of debt. Financial distress is proxied by the Interest Coverage Ratio (ICR), which reflects a firm’s ability to meet its interest obligations. The sample consists of 655 firm-year observations from non-financial companies listed on the Indonesia Stock Exchange (IDX) during the period 2014–2023. The analysis is conducted using panel data regression with fixed effects and heteroskedasticity-consistent estimation, specifically Panel EGLS with cross-section weights. The empirical findings indicate that ESG performance positively and significantly influences ICR. This suggests that firms with stronger ESG practices are better able to manage their interest obligations and are thus less likely to face financial distress. This result aligns with stakeholder theory, which emphasizes the importance of stakeholder engagement in promoting corporate resilience and long-term value creation. Furthermore, the study finds that the interaction between ESG performance and cost of debt is negative and statistically significant. This implies that a higher cost of debt can diminish the positive effect of ESG on a firm’s financial condition. In other words, while ESG performance enhances financial stability, this benefit is reduced when companies face high financing costs. This finding supports the trade-off theory, which asserts that firms must balance the advantages of debt financing with the associated financial risks. Overall, the study contributes to the growing literature on ESG and financial performance by highlighting the importance of financial structure in shaping the ESG–financial distress nexus. The results provide useful insights for corporate managers, suggesting that the integration of sustainability strategies with prudent financial management can lower the risk of financial distress. Investors are also advised to consider both ESG scores and cost of capital when evaluating a firm’s long-term viability.