1. Introduction
Given that environmental pollution has a significant negative influence on human health, with various economic consequences, such as reduced life expectancy, infant mortality, and productivity, it has become one of China’s most contentious issues (Kahn et al., 2015) [
1,
2]. The significance of environmental preservation has brought emission reductions to the attention of governments and the media throughout the world. High-carbon-emission enterprises in nations such as the United States and China in particular are under increased global pressure to significantly cut carbon emissions resulting from energy consumption in their manufacturing operations [
3,
4]. As global and national guidelines and legislation send a consistent message about reducing emissions, corporate leaders must consider how to address climate change.
The digital economy supports China’s economic growth. From a technological standpoint, a firm’s digital transformation is defined as the integration of digital technologies into its operational aspects. Vial (2021) [
5] and Kane et al. (2015) [
6] emphasize digital transformation as a process by which digital technologies cause disruptions, eliciting strategic responses from enterprises seeking to change their value-generating routes. The continuing automation of old manufacturing and industrial operations utilizing current smart technologies is referred to as the Fourth Industrial Revolution (Industry 4.0) [
7,
8]. For instance, the integration of Internet of Things (IoT) contributes to increased automation, improved communication, and self-monitoring, etc. When integrated with the circular economy, Industry 4.0 provides two industrial paradigms that enable new natural resource strategies [
8,
9].
To what extent does digital transformation affect firms’ environmental performance? This question is of great practical significance as it brings into focus sustainable economic and environmental development.
The relationship between digital transformation and sustainability has attracted wide attention from scholars and regulators. Existing literature focuses on the economic effects of digital transformation, such as stock price crash risk [
10], information environment [
11], and economic growth [
12]. Alakeson and Wilsdon (2002) [
13] first advocated for policy development to capitalize on how digital technology might boost economic growth while easing environmental pressure. In this context, the interaction between digitization and sustainability opens exciting possibilities for a greener society and economy, thus advancing the Sustainable Development Goals (SDGs).
Research on the environmental consequences of digital transformation is still in its infancy. Specifically, Chen and Hao (2022) [
14] examine the interplay between digital transformation and how board structure can improve environmental performance. Further, Cheng et al. (2021) [
15] find that new energy-efficient technologies can reduce carbon dioxide (CO2) emissions. This is echoed by Kurniawan et al. (2022) [
16], who find that digitalization of non-biodegradable waste promoted waste avoidance up to 65%. The literature has addressed the concerns of sustainable development goals (SDGs) in general (e.g., Chen and Hao.,2022; Cheng et al., 2021; Kurniawan et al., 2022; Balogun et al., 2020; ElMassah and Mohieldin., 2020). However, there is currently little evidence that digital paradigms contribute to environmental performance from firm-level empirical studies. The lack of research on the association between digital transformation and environmental performance hinders a comprehensive recognition of the challenge faced by firms in this digital era. In addition, detailed research on digital transformation and pollution emissions might provide insights on how to tailor specific strategies to improve environmental performance.
Given that industrial firms are the main producers of pollution, an assessment of the causal effects of digital transformation on firms’ pollution should be of special interest to economists and regulators concerned with how to minimize pollution emissions. To fill this gap, we try to explore the impact and mechanism of digital transformation on emission reduction of listed firms in China.
In response to these calls, notably those issued by Alakeson and Wilsdon (2002) [
13], Chen and Hao (2022) [
14], and Cheng et al. (2021) [
15], we devised this study to determine whether digital transformation affects firms’ environmental performance. The main conclusions are as follows: First, the digital transformation of enterprises can increase total factor productivity, green innovation, and internal-controls governance, thereby reducing the emissions of firms. Moreover, we show that in SOEs, heavy-polluting enterprises, and developed eastern regions, the impact of digital transformation on firms’ environmental pollution emissions is stronger.
Our study may complement and extend the research on firms’ environmental emissions in the following ways. First, to the best of our knowledge, we are the first to study the effects of digital transformation on comprehensive environmental performance in China using listed firm-level data. Although research exploiting and correlating digital transformation with various economic outcomes has increased, little is known about the role of changes in digital transformation in environmental pollution emissions. Previous studies have primarily tested whether digital transformation and corporate sustainability form the moderating role of board characteristics [
14]. However, we provide a novel explanation for the listed firms based on various environmental indicators from the perspective of digital transformation. Our study differs from existing studies in the following ways: (1) we concentrate on the influence of changes in digital transformation, which is a critical but understudied component impacting harmful emission activities. (2) Our analysis is based on the setting of China’s shift in assessing the necessity of full-scale digitization of listed firms. (3) We also address potential ways that adjustments in digital transformation might lower hazardous emissions from corporations. We focus on three kinds of underlying mechanisms including total factor productivity, internal corporate governance, and green innovation, and use firm-level data to explore the impact of digital transformation on environmental pollution. Overall, we provide new insight into the literature on firms’ digital transformation and enrich the research on the influences on firms’ environmental performance.
Second, our study contributes to the extensive literature on the determinants of toxic emissions. Previous research has found that local political promotion, economic institutions, and the law can affect environmental pollution [
17,
18]. However, our study enriches the literature on how digital transformation can affect firms’ environmental pollution. Our findings also provide a new perspective and different policy implications for other emerging markets concerned with environmental quality. Overall, our study fills a research gap and provides fresh insights into reducing firms’ emissions.
The rest of our paper is organized as follows. In
Section 2, we provide a literature review and develop the hypotheses. In
Section 3, we discuss the data and variables. In
Section 4, we present the baseline estimation results and provide a series of robustness checks. In
Section 5 and
Section 6, we discuss the results of our mechanism analysis and cross-sectional analysis, respectively. Finally, in
Section 7, we provide our conclusions and outline policy implications.
2. Hypotheses Development
Many scholars believe that digital transformation can drive corporate sustainable development and bring many benefits to business and society. For instance, Kunkel and Matthess (2020) [
19] conclude that the potential of information and communication technologies (ICTs) for environmental sustainability are becoming increasingly relevant as their application in industrial production grows. Additional digital applications with the potential to mitigate air pollution have been proposed as part of the SynchroniCity project (funded by Horizon2020). Autonomous air quality management (AAQM), for example, strives to provide tailored solutions to enhance air quality in public settings. Chowdury et al. (2019) [
20] documented that several ICT companies, including Microsoft and Nokia, are currently researching how to include IoT-based water-quality monitoring into their approaches to smart cities. In addition, according to the Global Climate Action Summit’s most recent Index Climate Action Roadmap, digital technology solutions in the areas of energy, manufacturing, agriculture, services, transportation, and traffic management could reduce carbon emissions by 15% globally by 2020.
Furthermore, firms are under pressure from a variety of stakeholders (government, community, media, etc.) who are beginning to focus on environmental concerns. As a result, firms are being obliged to implement proactive environmental governance measures. Cronkleton et al. (2008) [
21] found that environmental governance skills of enterprises are particularly appealing to stakeholders and may be promoted by appropriate firms. Thus, corporate environmental management uses a continuous improvement technique to monitor and control their economic impact on the environment to cater to stakeholders’ requirements [
22,
23].
In summary, the above discussions led to our hypothesis below:
H1. Digital transformation can improve corporate environmental performance.
As the digital economy significantly facilitates social productivity through high-tech innovation [
24,
25], it is considered an innovation driver for TFP [
26]. Digital transformation boosts operational agility and production flexibility [
27]. On the one hand, manufacturing companies can modify their production plans in response to changes in consumer demand for environmentally friendly products. On the other hand, digital transformation lowers transaction costs and boosts investment effectiveness, which causes high-polluting businesses to scale back on their production. Thus, we expect that:
H2. Digital transformation can affect pollution emissions through improving enterprise efficiency.
Furthermore, digital technology can increase information processing and company responsiveness [
28]. It makes corporate management and operations more transparent and helps stakeholders understand the company’s environmental governance commitment [
29]. Digital technology can enable business managers to have real-time data on production systems, supply networks, and customer consumption to promote sustainable development, according to (Fernando et al., 2019) [
30].
Digital technologies are expected to improve corporate environmental management on a product and process level by improving data quality and accessibility (such as real-time machine consumption information) [
22]. Chen and Zhang (2022) [
11] conclude that digital transformation enhances data timeliness and transparency, while lowering information supply costs. In addition, digital transformation and upgrading include all facets of a company’s activities, such as corporate governance and corporate profitability. Corporate digital transformation can explore and mine data based on digital technology, boost the vitality of the internal data system, and help businesses identify their current production process by lowering the production of harmful substances. Based on the above discussions, we propose Hypothesis 3:
H3. Digital transformation can affect corporate environment performance through improving internal controls.
Under the strain of environmental protection, firms view green innovation as a key approach for gaining a sustainable competitive advantage [
30]. To improve environmental performance, many Chinese firms have adopted green innovation as a strategic activity [
31]. Green innovation may be further broken down into green management innovation and green technology innovation from the perspectives of technology and management procedures [
32].
Costa and Matias (2020) [
33] demonstrate that digital transformation may create a sustainable innovation ecosystem. Similar findings were made by [
34], who discovered that digital technology can result in a more resource-efficient economic system by easing environmental stress. According to [
35], green innovation can reduce and even stop the production of pollutants and enhances corporate environmental performance [
36]. As a result, green innovation is a key strategy for coordinating the growth of the economy and the improvement of the environment [
37].
Thus, we provide Hypothesis 4:
H4. Digital transformation can affect corporate environment performance through improving green innovation.
Based on the discussions above, we propose our conceptual framework to shed light on the relationship between digital transformation and corporate environmental performance. The framework is presented in
Figure 1.
7. Conclusions and Policy Implications
The digital revolution is significantly influenced by national policies. The digitalization of listed firms is still in its infancy in many nations. Therefore, now could be a key moment to create the groundwork for firm digital transformation that is centered on environmental sustainability. To achieve this, a more active dialogue between scientists and policymakers is required regarding the certainties and uncertainties pertaining to the influence of the digital transformation on environmental sustainability in enterprise. While the volume of scientific knowledge that policy makers must deal with is growing, science itself is still mostly unsure of how the digital transition will affect social development goals.
In this paper, we explored the impact of digital transformation on environmental sustainability. By using Chinese A-share listed firms from 2010 to 2018, this study empirically tests the relationship between digital transformation and enterprise environmental performance. The main conclusion are as follows: first, the digital transformation of enterprises can increase total factor productivity, green innovation, and internal controls governance, thereby reducing the pollution emission of firms. Moreover, we document that in SOEs firms, high polluting enterprises, and developed eastern regions, the impact of the digital transformation of enterprises on the firm environmental pollution emission is stronger. Our findings provide new insights into the impact of enterprise digital transformation on corporate social responsibility that are useful to investors and firms operating in the Chinese stock market. Our study also has a certain significance for emerging market economies regarding how to improve environment performance.
Our study contributes to the research stream on the factors influencing corporate environmental performance by highlighting the link between digital transformation and pollutant emissions. Prior research has shown that digital transformation may be related to the corporate sustainability form the moderating role of board characteristics [
14], waste recycling [
16], climate change adaption [
50], CO
2 emissions [
15], and sustainable development goals (SDGs) [
51]. To the best of our knowledge, no study has explored the relationship between digital transformation and firm pollutant emissions (waste gas emissions and wastewater emissions). Our findings are essential for gaining a comprehensive understanding of how digital transformation affect firm environmental performance and will inspire future research exploring the effect of digital transformation.
7.1. Managerial Implications
Our work offers relevant policy recommendations for the system of environmental target accountability and suggests a potential way that enterprise digital transformation may influence a firm’s pollution levels. We think that governments around the world that are concerned with digital transformation and environmental conservation should be particularly interested in this topic. In particular, there is ongoing debate on how to properly control and avoid pollution. Although the large-scale closure of energy- and pollution-intensive businesses can help the environment in the short term, it will also have a long-term negative impact on economic growth. Additionally, whereas local governments may not have much incentive to implement environmental controls for the sake of local economic development, the central government is highly motivated to reduce pollution. Our findings demonstrate that the digital transformation offered to local governors can lower business pollution emissions, providing a fresh perspective on the present environmental protection strategy. Therefore, incentivizing local governors to cut pollution by linking the emissions quota to the performance of officials’ assessment systems could be useful.
7.2. Practicing Implications
This study has a number of significant practical ramifications. This work primarily responds to a practical request for assistance in comprehending how to employ digitalization to accomplish sustainability-related aims. The results of this study also enrich practitioners’ knowledge on the subject and may provide them with access to the particulars of existing academic output, which have been profiled and examined for the first time in this study. At the same time, the suggested study themes and the supplied research agenda greatly aid in meeting the needs of practitioners, particularly in the use of digitalization for strategic goals.
Based on the above analysis, we propose the following: Our study’s main finding is that corporate digital transformation can reduce pollution. Enterprises must be helped to grasp digitization in order to support corporate digital transformation. Traditional businesses should pursue precise development and increase operational efficiency through digitization while embracing the most recent technologies. Additionally, the businesses affected by digital transformation should receive an appropriate amount of legislative subsidies.
This study can assist people, particularly policymakers, practitioners, and other researchers, in better understanding the current trends in the application of digital transformation and the extent to which this development eases the shift toward greater sustainability. Setting concrete goals for minimizing non-recyclable garbage and setting increased research priorities for the relationship between digitalization and sustainability are necessary in the ongoing transition to a digital economy. The best way to balance rules and incentives should be covered in such studies as well. Instead of viewing the adoption of the digital transformation concept as a benefit in and of itself, it is always important to analyze it critically in light of the SDGs.