A matter of principle means an issue based on a moral rule or firm belief. The correct answer is this meaning because the expression is used figuratively, not only by its literal words.

Examples:

• She refused the bribe as a matter of principle.
• In an HSC essay, A matter of principle can express this meaning: an issue based on a moral rule or firm belief.
• When this expression appears in a passage, connect A matter of principle with the idea of an issue based on a moral rule or firm belief.