["Business Strategy and the Environment, EarlyView. ", "\nABSTRACT\nThis study explores how environmental controversies affect corporate risk in the global energy sector, using data from companies in 24 countries between 2016 and 2023. By employing Altman's Z‐score, return on assets volatility, and earnings volatility, and applying a system GMM estimator, the analysis identifies a robust U‐shaped relationship between controversies and risk. Moderate controversy levels appear to reduce risk, likely because heightened stakeholder scrutiny encourages corrective governance and risk‐management practices. However, severe controversies increase risk through reputational damage, regulatory pressure, and heightened uncertainty. Grounded in legitimacy and signaling theories, the study demonstrates that the effect of environmental controversies on business risk is non‐linear and context dependent, particularly in environmentally sensitive industries. Additionally, results highlight the mitigating role of board characteristics, including gender diversity and expertise. For managers and investors, the findings underscore the importance of transparency, governance improvements, and institutional factors in ESG‐based risk assessments.\n"]