The impact of digitization on environmental sustainability: New insights from G20 nations

The digital transformation of G20 economies presents unprecedented opportunities for addressing global climate challenges, yet the mechanisms through which digitization influences environmental outcomes remain insufficiently understood. This study examines how digitization affects environmental sustainability, measured by carbon emissions, across G20 nations using comprehensive panel data from 2005 to 2022. Employing two-way fixed effects models complemented by mediation and moderation analyses, we provide robust empirical evidence on the digitization-environment nexus. Our findings reveal four key insights: First, digitization significantly enhances environmental sustainability by reducing carbon emissions across G20 countries, with the effect remaining robust across multiple specifications and sensitivity tests. Second, technological innovation serves as a critical mediating mechanism, explaining how digitization translates into environmental benefits through enhanced innovation ecosystems, reduced knowledge diffusion costs, and accelerated development of clean technologies. Third, both fiscal decentralization and financial development act as positive moderators, amplifying digitization's carbon reduction effects by enabling more targeted local governance and improved access to green financing, respectively. Fourth, the environmental benefits of digitization exhibit pronounced heterogeneity, with economically developing nations experiencing substantially larger emission reductions compared to their advanced counterparts, suggesting greater potential for technological leapfrogging in sustainable development. These findings advance our theoretical understanding of digital-environmental interactions while providing actionable insights for policymakers seeking to leverage digital transformation for climate objectives. The study contributes to the growing literature on sustainable digitization by identifying specific pathways and contextual factors that determine the environmental effectiveness of digital technologies.