Esc key on M1 MB Air unresponsive

Have you tried a restart? Or maybe a restart in Safe Mode? Sometimes either can "fix" certain problems. I'm assuming this is a fairly new situation. Do you have any AV, cleaner or fixer apps installed? If so, uninstall all of them and restart.

When is it not working? The Esc key is, by design, set to function as escape only under certain circumstances. For example, while I'm typing this, hitting the Esc key has no effect.

Does Option-Control-Esc work to bring up the force quit panel?

It could be either the keyboard or the Mac. Try it on another Mac and/or try another KB on your Mac. You need to determine which is having a problem.

Well there ya go! Good deal!