Businesses use digital platforms and technology to monitor production and operational processes in real-time, improve internal control standards, and optimize internal governance structures during the digital transformation process (Wang & Kang, 2023). Firms also disclose information that is more timely, transparent, and thorough, which helps external stakeholders monitor the information (Forman & Van, 2019). Digital transformation makes it easier for the general public and outside regulators to comprehend and evaluate a company's environmental performance. This allows for well-informed investment decisions and forces businesses to consider their environmental impact. Thus, this article suggests that there are three ways in which digital transformation might improve corporate environmental performance: external supervision, optimization of the governance structure, and financial restrictions.
The digital economy is growing at a rapid pace, and as organizations continue to shift digitally, there are more chances to reduce financial limitations. Digital technologies can assess a company's environmental risks through data analysis and intelligent algorithms, allowing banks and other financial institutions to comprehensively evaluate a company's environmental risks. Based on this assessment, financial services can be provided to companies, reducing the investment risk for banks and supporting the financing of environmental equipment renovation and upgrades for companies. This, to some extent, ensures the sustainability of a company's environmental investment. Furthermore, the combination of digital technology and financing constraints raises the bar for a company's environmental performance (Gao & Wang, 2023). This constraint mechanism can incentivize companies to enhance their environmental management, reduce environmental risks, and thus improve their environmental performance.
Digital transformation also helps companies optimize their internal governance structure, enabling scientific and precise environmental decision-making, thus enhancing environmental performance. Digital technology has the potential to transform corporate information communication by helping businesses gather and disclose environmental data more quickly and correctly. This enhances the company's internal environmental information-sharing capabilities and information transmission efficiency, allowing the company to have a comprehensive and timely understanding of relevant information, and laying the foundation for informed decision-making. On the other hand, according to agency theory, company managers have a profit-seeking inclination, and environmental investments may not yield short-term profitability. Consequently, managers might overlook the importance of environmental protection, leading to insufficient investment in environmental protection. The application of digital information platforms can facilitate the strengthening of internal stakeholders' oversight of managerial decisions, making managers consider environmental factors more seriously during decision-making, thereby promoting investment and performance in environmental protection.
Additionally, companies can use digital transformation to meet the requirements of external oversight, enhance collaboration and communication with the government, the public, and stakeholders, and improve the credibility and reputation of their environmental performance. Companies can utilize advanced digital technology to monitor changes in the environment during the product lifecycle and production processes in real time, reducing waste of resources during production and minimizing the negative environmental impact. This helps in avoiding environmental penalties. Additionally, external overseers can obtain crucial information through digital technology to monitor the company's production processes and further supervise its environmental performance. With increasing external scrutiny, companies face growing pressure. To maintain their corporate image and reputation, company managers will make decisions that align more closely with investor expectations, and environmental investments are a significant part of these decisions. Therefore, based on the previous analysis, the following hypothesis is proposed: