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Guo, B.; Huang, X. Digital Transformation on Carbon Performance. Encyclopedia. Available online: https://encyclopedia.pub/entry/49566 (accessed on 03 July 2024).
Guo B, Huang X. Digital Transformation on Carbon Performance. Encyclopedia. Available at: https://encyclopedia.pub/entry/49566. Accessed July 03, 2024.
Guo, Borui, Xiaoxia Huang. "Digital Transformation on Carbon Performance" Encyclopedia, https://encyclopedia.pub/entry/49566 (accessed July 03, 2024).
Guo, B., & Huang, X. (2023, September 24). Digital Transformation on Carbon Performance. In Encyclopedia. https://encyclopedia.pub/entry/49566
Guo, Borui and Xiaoxia Huang. "Digital Transformation on Carbon Performance." Encyclopedia. Web. 24 September, 2023.
Digital Transformation on Carbon Performance
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This entry is adapted from the peer-reviewed paper 10.3390/su151813410

The continuous proliferation of the global digital wave has increased the contribution of firms’ digital transformation as a vital force propelling economic growth and sustainable development, highlighting the importance of digital transformation and the environment.

digital transformation carbon performance green technology innovation

1. Introduction

The frequent occurrence of extreme weather worldwide has significantly affected economic growth and social development. In response to global climate change caused by carbon emissions, countries around the world have been enacting a series of carbon reduction policies [1][2][3]. The global economy is progressively transitioning toward a sustainable and green developmental paradigm. Within this framework, firms encounter a multitude of challenges stemming from climate-related risks amid the progression toward an eco-friendly economic transformation. Concurrently, the advent of climate change and ecological concerns has fundamentally reshaped the concept of corporate social responsibility in the contemporary epoch. Stakeholders, encompassing consumers, suppliers, and regulatory bodies are increasingly demanding that firms take responsibility for their environmental stewardship [4]. Therefore, reducing carbon emissions, practicing prudent resource consumption, and adoption of sustainable business models are not only crucial societal and ethical obligations but also key determinants for fostering firm resilience, ensuring long-term survival, and promoting comprehensive development.
Currently, the global surge of the digital wave has permeated societies. There is an unceasing influx of digital technologies fundamentally altering established corporate production and operational frameworks [5], reshaping human resource management processes [6], and boosting the rapid change of business models [7]. To seize market opportunities and gain first-mover advantages, firms are rapidly promoting digital transformation with cloud computing, big data, artificial intelligence technologies, and other related technologies as the core. The application of digital technology has improved the corporate information environment [8], enhanced the internal resource integration capabilities, and reshaped the production and operation processes [9]. Consequently, enterprises can break through traditional and conventional growth limitations and access novel avenues for development [7][10].
The pursuit of digital transformation and the enhancement of carbon performance have emerged as vitally significant strategic objectives for corporations. By embracing the opportunities catalyzed by digitization, enterprises can reconfigure their operational paradigms, optimize production efficiency [11], and secure a competitive advantage within the market. Digital transformation has evolved beyond mere discretion, evolving into a strategic imperative aligned with the shifting external environment [12]. Impressive carbon performance exceeds being merely a facet of corporate environmental responsibility. It stands as an indispensable element in meeting stakeholders’ expectations and satisfying the market’s green consumption needs [13]. The integration of digital transformation and carbon mitigation engenders effective synergies capable of potentially reshaping the prospective developmental trajectory of enterprises.
This research employs annual reports of Chinese A-share listed firms to measure indicators for corporate digital transformation and estimate the relationship between the degree of digital transformation and carbon performance. This investigation focuses on China for two reasons. First, China has the second largest economy in the world and the largest stock market in Asia, providing ample data support for the research. Second, the Chinese government committed to achieving carbon neutrality and peaking carbon emissions, launching a series of carbon reduction and control policies to foster a comprehensive shift towards a low-carbon economic framework [3]. Under this influence, substantial shifts have occurred in the carbon emission intensity and carbon performance of Chinese listed firms. This provides an ideal test site to analyze the influencing factors of corporate carbon performance. Moreover, the extent and scope of their digital technology implementation manifest notable disparities. These reservoirs of data provide ample source material for investigating the interplay between corporate digital transformation and carbon performance.
In scrutinizing the nexus between corporate digital transformation and carbon performance, this study collected and analyzed annual reports from Chinese A-share listed firms to extract the frequency of terms associated with digital technology. Formulating metrics denoting digital transformation harmonized them with datasets pertaining to corporate carbon performance, thereby elucidating the causal linkage between these domains. The fundamental regression findings reveal that corporate digital transformation considerably improves carbon performance. Each unit increase in the degree of digital transformation causes a corresponding increase of 0.504 units in carbon performance. This outcome persists in the robustness tests even after a comprehensive array of rigorous testing. Examining the mechanisms reveals that the rise in digital transformation improves carbon performance through two paths: promoting corporate green technology innovation and enhancing total factor productivity. Subsequent examination elucidates that a well-established green management system, lower financing constraints, government subsidies, and non-political connections enhance the positive relationship between digital transformation and carbon performance.

2. Digital Transformation on Carbon Performance

Carbon performance refers to the performance and effectiveness of a firm or organization in managing and reducing its carbon footprint. The carbon performance of an enterprise not only interfaces with its commitment to social responsibility and sustainable development, but also considerably affects its market competitiveness and long-term growth [14][15]. An increasing number of firms are considering carbon performance as a significant indicator for corporate governance and strategic decision-making. These firms are proactively adopting measures to curtail their carbon emissions throughout operational processes, while concurrently shouldering environmental and social responsibilities, thereby augmenting their sustainable competitive advantage [16].
Regarding the measurement of corporate carbon performance, Hoffmann and Busch [17] underscore that carbon intensity indicators can reflect the differences in carbon emissions among firms. Chapple et al. [1] measured corporate carbon intensity using the ratio of total corporate carbon emissions to every million units of sales, a method subsequently adopted by numerous studies [18][19]. According to the previously outlined methodology, this study employs the carbon intensity indicator to assess corporate carbon performance. Given the dearth of carbon emissions data pertaining to Chinese listed corporations, this research embraces the technique suggested by Shu and Tan [20]. This technique involves computing the aggregate industry-level fossil fuel consumption and subsequently apportioning firm-level carbon emissions data based on operational costs.
Digital transformation is a process that constitutes an entity through combinations of information, computing, communication, and connectivity technologies [21]. Corporate digital transformation refers to the adoption of digital technologies to empower operations management, production processes, innovation activities, and other internal activities, and ultimately to enable digital technologies to drive firms’ development and growth [11].
Recently, prior studies which have assessed the economic effects of corporate digital transformation can be categorized into four groups. The first group focuses on firm characteristics, such as operating efficiency [22], financial performance [23], total factor productivity [24], credit financing [25], and strategic flexibility [26]. The second group addresses investment and financial endeavors, encompassing cash reserves [5], corporate innovation [27], financialization [28], capital structure [29], and financial distress [30]. The third group relies on capital market responses which involve stock crash risk [31], stock volatility [32], and liquidity creation [33]. The fourth group closely associates with stakeholders, covering supply chain innovation [34], knowledge transfer [35], consumer value creation [36], and organization governance [37].
The impact of digital transformation on corporate sustainable development has attracted substantial academic attention. For example, Fang et al. [38] assert that the digitization of firms enhances their Environmental, Social, and Governance (ESG) performance. This achievement is attributed to the reduction of agency costs, the augmentation of goodwill, and the enhancement of environmental performance. Moreover, Zhang and Zhao [39] discern a U-shaped correlation between digital transformation and environmental performance. Their study assessed corporate environmental performance through a composite variable including reductions in resources and emissions, management dedication, and regulatory evaluation. Despite the extensive research conducted on the correlation between digital transformation and corporate environmental performance, the findings are inconsistent, necessitating a more thorough exploration. This research focuses on investigating the influence of digital transformation on corporate carbon performance. It systematically elucidates the mechanisms through which digital transformation shapes carbon performance, alongside the divergent effects observed under diverse environmental conditions. The primary objective is to meticulously analyze the prospective interrelationship between digital transformation and carbon performance on a micro-level scale.
Digital transformation affords firms an extensive repository of production data and information [8]. Through organizing and analyzing the collected data, firms can accurately identify carbon emission sources and inefficient production links [40]. This analysis enables a precise optimization of energy consumption and resource utilization, enhancing production processes and reducing energy consumption.
Using technologies such as big data, cloud computing, and artificial intelligence, the amalgamation of digital platforms with intelligent devices assists firms in achieving more efficient management of production costs and energy consumption [41]. Concurrently, the real-time monitoring and data analysis of the production process empower firms to swiftly detect anomalies in energy consumption and emissions [42]. Then, prompt interventions can adjust and optimize processes, thereby mitigating the carbon emissions associated with each product unit and enhancing corporate overall carbon performance.
Digital transformation can amplify the efficiency of corporate supply chain management and the resilience of the supply chain [43]. Assisted by digital technologies, shifts in the market and data on customer consumption are rapidly transmitted upstream. Firms can monitor various links in the supply chain in real time by building digital platforms, accurately forecasting customer demand, and promptly adjusting production and logistics arrangements [44][45]. With digital supply chain management, enterprises can curtail inventory expenses and enhance the efficiency of the supply chain, thereby fortifying their competitive stance [46]. This augmentation bolsters corporate carbon performance by optimizing the input–output ratio.
The integration of digital transformation and carbon performance can augment firms’ image of sustainable development and cultivate a positive corporate reputation [47]. In an era characterized by escalating consumer concerns regarding corporate social responsibility and environmental implications, enterprises exhibiting commendable carbon performance are more inclined to secure consumer trust and loyalty. This, in turn, bolsters their sustainable competitive advantages within the market [48][49].
Digital transformation further enhances a firm’s ability to integrate and utilize resources, driving the growth of total factor productivity [50]. First, digital transformation strengthens the corporate capacity to collect, store, and analyze data. By processing and integrating data from various aspects such as production, sales, and supply chain, firms can identify operational risks, reduce operating costs, and improve human capital and total factor productivity [51]. Secondly, the application of digital technologies augments cross-departmental collaboration and communication, fostering the exchange of information and sharing of resources. This mitigates the emergence of information silos and redundant endeavors, consequently amplifying the efficiency of resource allocation [52] and corporate total factor productivity. This increase in total factor productivity corresponds to an augmented input–output ratio, thereby resulting in amplified value creation per unit of carbon emissions. Consequently, the enhancement of total factor productivity inherently bolsters a firm’s carbon performance.
According to the resource-based view, the development of firms cannot be separated from the support of production factors. Data elements are increasingly becoming an important source of corporate growth and value creation [53]. Digital transformation breaks the communication and knowledge barriers and provides firms with rich data resources [54]. This provision equips firms to acquire environmental knowledge through interaction with the external milieu, leading to the advancement of green technology innovation [55]. Concurrently, corporate digital transformation facilitates firms in the perpetual augmentation of innovation capital investment [27], thereby furnishing a reinforced material foundation for green technology innovation. Furthermore, the implementation of digital technologies, including virtual experimentation and simulation, expedites the innovation trajectory and engenders a plethora of competitive decarbonization strategies and eco-friendly product blueprints [56][57]. Therefore, digital transformation reshapes the process of green technology innovation and enhances corporate green innovation capabilities. The advancement in green technology innovation reduces the carbon intensity of each unit of product, thereby improving corporate carbon performance. 
To summarize the theoretical analysis above, the conceptual mechanism is shown in Figure 1.
Figure 1. Mechanism Framework.

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Subjects: Operations Research & Management Science
Contributors MDPI registered users' name will be linked to their SciProfiles pages. To register with us, please refer to https://encyclopedia.pub/register :
Borui Guo
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Update Date: 25 Sep 2023
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