Title : Digital transformation and climate sustainability: How innovation, human capital and institutional quality shape ICT's environmental impact
Abstract:
Digital transformation is increasingly promoted as a pathway to environmental sustainability yet expanding information and communication technologies (ICT) also generate substantial energy demand and associated carbon emissions. Against this backdrop, this study examines when and under what conditions ICT can contribute to climate-change mitigation across 36 Organisation for Economic Co-operation and Development (OECD) countries from 2008 to 2021. Particular attention is devoted to the complementary roles of technological innovation, human capital and institutional quality in transforming digital expansion into environmentally sustainable outcomes. The empirical analysis combines fixed-effects estimation with Driscoll–Kraay standard errors, two-step System Generalised Method of Moments (GMM), and Method of Moments Quantile Regression (MMQR) to account for cross-sectional dependence, potential endogeneity and heterogeneous emissions responses. The baseline results indicate that ICT expansion, considered independently, is associated with higher carbon dioxide (CO?) emissions, challenging the assumption that digitalization necessarily delivers environmental benefits. However, interaction models reveal that technological innovation, skilled human capital and stronger institutional quality can significantly moderate — and ultimately reverse — ICT’s emissions-increasing effect. Threshold analysis further suggests that these complementary capabilities must reach critical levels before digitalisation's environmental benefits can be realised. Within the sample, OECD economies are reported to operate above the estimated thresholds, enabling ICT to catalyse emissions reduction when supported by conducive innovation and governance ecosystems. The paper's findings highlight the importance of integrating digital infrastructure investment with green technological innovation, knowledge-intensive workforce development, and accountable environmental institutions. The study contributes to debates on sustainable digital transitions and offers policy insights for aligning technological transformation with climate action, responsible production and the United Nations Sustainable Development Goals (SDGs).
Keywords: Digital transformation; Environmental sustainability; CO? emissions; ICT; Green technological innovation; Human capital; Institutional quality; OECD economies.
