Digitalization can support corporate sustainability, but unchecked claims raise greenwashing risks

Digital transformation is fast becoming a test of corporate sustainability, but technology alone may not be enough to prove that companies are becoming greener or more accountable. New research shows that digital tools can support real gains in environmental, social and governance (ESG) performance, but only when outside auditors can verify that these tools are being used for substantive change rather than symbolic disclosure.

Published in Sustainability, the study titled "Fostering the Digitalization-Greenization Synergy: Substantive ESG Improvement or Symbolic Disclosure? Evidence from China" examines Chinese A-share listed firms from 2018 to 2024. China serves as the paper's main example, but the findings point to a wider challenge for emerging markets where rapid digital adoption, rising ESG pressure and weak verification systems can create room for digital greenwashing.

Digital tools can support ESG gains, but greenwashing risks remain

The pressure to become both technologically advanced and environmentally responsible has created a new corporate narrative in which digital transformation and ESG progress are often presented as parts of the same strategy. Cloud computing, big data, artificial intelligence and other tools are touted as ways to monitor emissions, improve governance, reduce waste and strengthen accountability.

The shift creates both opportunity and risk. Digital systems can help firms monitor energy use, track emissions, manage supply chains, strengthen internal controls and improve reporting. They can also make corporate claims harder for investors, regulators and the public to verify, especially when the underlying systems are complex and controlled by company management.

The main issue is not whether digitalization matters, but whether it produces measurable ESG improvement. In the research, digital transformation has a positive but incremental link with ESG performance. The effect is real, but it is not strong enough to support the idea that technology automatically leads to sustainability.

Digital systems can improve how firms collect and use information, but they can also make corporate claims more difficult to test. For instance, a firm can claim that new data systems are helping it cut emissions or improve governance, but outside stakeholders may struggle to determine whether those claims reflect operational change or polished disclosure.

Digital greenwashing builds on that information gap. Unlike older forms of greenwashing, which often relied on vague environmental language, digital greenwashing can hide behind technical systems, automated reporting and complex data claims. The more advanced the system appears, the harder it may become for outsiders to test whether the ESG benefit is real.

China combines strong digital policy, fast corporate technology adoption and rising sustainability expectations, making it a useful test case. Its companies operate under pressure to modernize operations while responding to environmental rules and investor scrutiny. Similar tensions are visible across other emerging economies trying to grow digitally while meeting climate and governance demands.

The strongest ESG benefits come from foundational digital infrastructure rather than headline-grabbing technologies. Cloud computing and big data show a clearer connection to ESG improvement because they help firms organize information, reduce internal silos and make operational data easier to track.

AI and blockchain do not show the same consistent effect in this setting. Their role may still expand, but many companies appear to use them in narrower areas such as product development, finance or pilot projects rather than broad sustainability management. For ESG performance, basic data infrastructure may currently matter more than advanced technology labels.

Digital transformation is often discussed as if all technologies carry the same sustainability value, but the evidence suggests otherwise. Tools that improve data collection, monitoring and internal control are more likely to support ESG progress than technologies adopted mainly for strategic signaling or market visibility.

External audits decide whether digital ESG claims become credible

External verification is the decisive factor. High-quality audits strengthen the link between digital transformation and ESG performance while weak or absent assurance leaves digital claims exposed to doubt. Digital claims should not be accepted simply because a company has adopted new systems or uses advanced technology language in its disclosures. Credibility depends on whether independent auditors can check the data, systems and processes behind those claims.

Premium auditors can reduce the information gap between company insiders and outside stakeholders. Their role is not limited to reviewing financial statements. In a digital ESG environment, auditors may need to assess data governance, automated reporting tools, environmental monitoring systems and the reliability of digital information flows. This turns audit quality into a gatekeeper against digital greenwashing. When outside assurance is strong, companies have less room to exaggerate the ESG value of technology adoption. When assurance is weak, digital transformation can become another way to manage public perception without delivering enough operational change.

The ESG impact also differs across environmental, social and governance categories. Environmental and governance outcomes are easier to connect with digital systems because they often depend on measurable data, including emissions, energy use, compliance controls and internal reporting structures.

According to the study, the social pillar is harder to verify. Issues such as employee welfare, community impact, supply chain labor practices and data privacy often involve qualitative evidence. Digital systems may record some of this information, but the standards for checking it are less clear than those used for environmental or governance data, making the social pillar more vulnerable to weak disclosure. Companies can make broad claims about responsibility toward workers, communities or customers without providing verifiable evidence. Stronger audit systems and clearer reporting standards are needed if digital transformation is to improve social performance alongside environmental and governance outcomes.

Ownership patterns add another layer. In China, state-owned firms show a stronger direct link between digitalization and ESG performance, reflecting policy pressure and greater resource capacity. These firms are often pushed by public mandates to adopt digital and sustainability practices, making their digital investments more closely tied to compliance goals.

Private firms face a different credibility test. Without the same level of state backing, they are heavily reliant on market credibility. High-quality external audits become more important because they help convince investors that digital investments reflect genuine sustainability progress.

The industry pattern is also uneven. The clearest ESG gains appear in high-pollution sectors, where companies face stronger environmental pressure and higher compliance risks. For heavy industry, mining, chemicals, metals, power and similar sectors, digital systems can directly support emissions monitoring, energy management and regulatory compliance. Lower-pollution sectors may use digital tools for different goals, including customer service, product innovation and market expansion. These investments can improve business performance, but they may not produce the same measurable ESG effect.

Why it matters for policy and corporate accountability

The rise of digital sustainability claims creates a new challenge for regulators. As companies adopt more complex systems, the gap between what insiders know and what outside stakeholders can verify may widen. Without stronger oversight, digital transformation could make greenwashing more sophisticated rather than less common.

Digital audit standards should become a policy priority. Regulators need rules that help auditors assess the systems behind ESG claims, including data quality, automated reporting, cybersecurity controls, emissions-monitoring tools and governance of digital platforms.

High-pollution industries require special attention because these sectors face the greatest environmental risks and the strongest need for reliable monitoring. Stricter disclosure and verification rules would help ensure that digital tools are used to reduce operational harm rather than merely improve public image.

Private firms may also need better access to credible assurance. High-quality audits can be costly, but they are increasingly important for companies seeking ESG-focused capital. Support for reliable verification could help more firms turn digital investments into trusted sustainability gains.

State-linked firms face a separate accountability challenge. Policy mandates can accelerate digital and ESG adoption, but they can also encourage compliance-driven reporting. Evidence-based verification is needed to show whether mandated action produces real performance improvement.

Corporate managers should treat digital transformation as an operational strategy, not a branding device. Cloud systems, big data platforms and other foundational tools are most useful when linked to measurable ESG goals, internal accountability and reliable reporting.

High-quality audits should also be seen as strategic assets. In a market where investors are increasingly alert to greenwashing, independent verification can help separate serious sustainability efforts from symbolic claims.

For emerging markets, the stakes are even higher. Many firms are simultaneously pursuing digital growth and green transition, often under weaker institutional conditions than advanced economies. Without robust assurance systems, digital sustainability strategies could widen the gap between disclosure and reality.