Enhancing environmental performance in the OECD nations through financial inclusion, digital innovation and effective governance Open Access

The global natural environment has significantly changed over the past few decades. Financial inclusion is a significant factor that impacts the financial sector by increasing environmental performance and improving economic growth (Hossain et al., 2024). Financial inclusion increases credibility and efficiency for firms operations by providing necessary financial services such as transactions, insurance, payments, savings and credit facilities (Suhrab et al., 2024). This open financial framework may positively impact the environment, as it can, directly and indirectly, improve ecological quality through the efficient and convenient utilization of competitive financial solutions, which ensures green energy investments (Oanh, 2024).

Furthermore, financial inclusion enables developing nations to adopt green technologies in their manufacturing practices to mutually improve the domestic and international climate (Usman et al., 2024). Microfinance reduces financing costs and makes available inclusive financial programs that support the provision of efficient environmental solutions to combat environmental deterioration (Shabir, 2024). Firms’ effectiveness in developing financial structures helps export goods and services, thus improving the economy and the environment (Al-aiban, 2024). All these advancements prompted the necessity of paying attention to how financial inclusion contributes to economic growth without compromising the environment’s future (Gao, 2023).

Similarly, information and communication technology (ICT) enhances ecological efficiency in Organization for Economic Co-operation and Development (OECD) countries by supporting communication platforms, implementing knowledge-sharing tools, offering online solutions for communication, gaining insights and managing business operations (Jiang and Usman, 2023). Private sector involvement, either as PPP or direct investment, provides funds, creativity and expertise for implementing these technologies, including smart grids, Internet of Things (IoT) and big data (Xie et al., 2023; Coskun and Unalmis, 2022). The EPI data established a relationship between the selected OECD countries’ high ICT investment and their relatively high environmental performance ranking, including Sweden, Denmark and Finland (Duan and Liu, 2023). Moreover, government effectiveness is essential for evaluating environmental performance (Castro and Lopes, 2022; Tian and Li, 2022). It encompasses the productivity and efficiency of public sector agencies, policies and their effects, quality of regulation and the lack of corruption (Ullah et al., 2023). Good governance and effectiveness can establish and implement ample environmental regulations and resource allocation, maintaining public trust in environmental policies (Barut et al., 2023; Qing et al., 2023).

Besides, the rule of law is one of the fundamentals of good governance, which comprises respect for the law, protection of property and the administration of justice (Hashemizadeh et al., 2023). Environmental management involves the execution of environmental policies and standards, monitoring of international environmental agreements and advocating for and protecting the field of environmentalism (Yuan and Li, 2023). Precise legal requirements enhance environmental protection by facilitating effective laws, promoting good corporate governance and deterring harmful activities (Ahmad et al., 2022; Tay et al., 2022). Voice and accountability are fundamental governance practices that improve citizens’ involvement in ecological deliberation processes, empowering civil society to defend environmental issues, participate in policymaking and influence governments on ecological affairs (Dhaoui, 2022). This study focuses on the challenges that OECD countries face in improving environmental performance at the policy level, particularly in meeting global climate goals like the Paris Agreement, which have the greatest potential for combating climate change. Despite the research focused on environmental performance, a crucial gap explains how the interacting impact of digital innovations, financial inclusion and effective governance would influence the desired environmental results. By filling this gap, the research gives to the academic discourse and provides practical insights for policymakers to enhance environmental performance through comprehensive strategies. The pool mean group–autoregressive distributed lag (PMG-ARDL) model also brings more methodological novelty because it captures both short-term and long-term effects. A statistically significant coefficient exists for these effects of investment in ICT on the environmental performance of OECD countries, as well as the impact of financial inclusion, government effectiveness, rule of law, voice and accountability. Hence, the primary objectives of this research are to investigate the impact of financial inclusion, digital innovation (ICT investment on private participation) and governance aspects, including the rule of law, government effectiveness and voice accountability, on the environmental performance of OECD countries. This research offers valuable wisdom for government officials and policymakers on ecological administration.

This literature review aims to review the existing knowledge on the research issue thoroughly, recognize important themes and critically examine gaps, contradictions and overlooked issues in the literature. The review contextualizes current research and highlights how it contributes to closing the recognized gaps by looking at earlier studies. This chapter will analyze the literature associated with how digital innovation, financial inclusion and governance influence environmental outcomes in OECD countries. In this process, we will compare different studies, draw attention to debates or anomalies and develop the background for the research lacuna this study intends to address.

This theory states that organizations behave substantially due to their institutional environment, which involves formal guidelines and regulations alongside informal norms and values. Within your investigation of the environmental performance of OECD countries, this theory indicates that factors including financial inclusion, ICT investment and the rule of law, government effectiveness and voice accountability shape the institutional environment, which may help or hinder the private sector’s involvement in sustainable practices. A vigorous institutional system supports legitimacy and drives organizations to adopt environmentally responsible practices to conform to societal expectations and governmental mandates. By analyzing these dynamics, this research can describe how effective governance and inclusive financial services positively impact environmental outcomes via improved accountability and involvement from the private sector.

The technology acceptance model (TAM) is a framework that explains how users come to accept and use new technologies, emphasizing two key factors: perceived usefulness and ease of use. The framework of this investigation into the environmental performance of OECD countries allows the study to apply TAM to determine how investments in financial inclusion and ICTs affect the private sector’s involvement in sustainable practices. When businesses witness that new technologies (such as digital financial services or eco-friendly innovations) can boost operational efficiency and positively affect the environment, they are more inclined to accept and adopt them. Also, the ease of use is critically important; if stakeholders can easily incorporate these technologies into their practices, the adoption chances increase, leading to favorable environmental results stemming from more engaged private participation and powerful governance techniques.

Investment in ICT with private participation (PP) refers to the affirmations and monetary contributions from private businesses directed at initiatives to develop ICT backbone infrastructure. The investment can consist of hardware, software, and additional technologies that help improve ICT service production and delivery, usually intended for maintaining projects for over a year (He et al., 2024). Singo (2024) analyzed the influence of ICTs on environmental indicators. The study’s initial results revealed ecological damage from a lack of disposal strategy. Environmental awareness was crucial for sustainable practices. Chen et al. (2022) analyzed the association between ICT, human capital and China’s environmental efficiency and green growth between 1991 and 2019. Thus, it provided tentative evidence that ICTs are helpful for green development and reducing CO₂, at least in the long term. Education is influential in lowering carbon dioxide emissions but has a negligible effect on green growth. In this context, the research findings indicate that environmental efficacies, technologies and human capital investment by the government can go a long way toward minimizing pollution. The policies that can improve human capital and promote ICTs should be adopted concurrently. Bhujabal et al. (2021) explored the impact of ICT and FDI on pollution in Asia Pacific countries from 1990 to 2018. Accordingly, the study revealed that ICT and FDI are opposing forces for carbon emissions and pollution. However, ecological contamination has been determined to be comparatively insignificant because of the growth of the ICT network and FDI. Sustainable economic development should be promoted for the Asia Pacific countries, emphasizing furthering the ICT structure and FDI. The research proposed that African countries should open their doors for FDI to enhance the arrival of green technologies. CS-ARDL removes heterogeneity and cross-section dependence to a certain extent to offset the impact of element heterogeneity and cross-sectional dependency. The study comprehensively examined the green economy, environment, and economies:

Financial inclusion describes the approach to giving people and businesses determine to financially useful services that satisfy their diverse needs (Saqib et al., 2023). Its goal is to help make certain that everyone can engage fully in the financial system (Niekerk, 2024). According to Bakhsh et al. (2024), the study found the importance of the financial industry and technical innovation in advancing sustainable development. The research clarified how important it was for developing nations to compare goals for sustainable development with economic growth rates. According to Chaudhry et al. (2022), as earlier stated, the study focused on the relationship between financial inclusion and environmental pollution in OIC nations between 2004 and 2018. The study used the DCCE method to assess the state of deforestation, emission of greenhouse gases and other ecological impacts. The findings proved that the level of financial inclusion positively influenced the amount of CO₂ emissions, CH₄ emissions and deforestation while negatively affecting N2O emissions and the overall imprint on the environment. Therefore, the study recommended that the government’s agenda should focus on sustainable forest management and access to financial services as a countermeasure against environmental challenges (Koomson and Danquah, 2021). The study applied information from the year beginning 1990 to the year ending 2020. Koomson and Danquah’s (2021) research results affirmed that the financial inclusion services provided positively and significantly influence environmental performance. The study was practical in presenting the knowledge necessary in the contemporary digital environment to minimize environmental pollution and increase environmental activity through digitization.

Wang et al. (2022) examined the influence of financial liberalization and improvement on nature and its sustainability. From the study’s outcomes, financial inclusion was discovered to have a significant positive effect on the extent of environmental sustainability at a medium and high level but inexistent at low levels. Globalization of finance has made ecological operations and the economic possibility of the nation worse. The study offered relevant policy recommendations and accurate data to promote people’s fiscal engagement, improve companies’ environmental profiles and advance the sustainable development agenda. Khan and Rehan’s (2022) study investigates how integrated financing and banking sector performance rates influenced CO₂ emissions and renewable energy consumption from 1990 to 2020. The findings showed that bank assets improved the use of renewable energy.

Latif et al. (2023) investigated digital Fin access’s impact on institutional quality and environmental performance. This work used data from 1996 and ended with 2020 data for analysis. Concerning HI, the study’s results revealed that DFI significantly affected environmental performance. Moreover, as the institutional quality improved, it was also realized that the CO₂ emissions were reduced, and the environment was enhanced. The chiefs of state and policymakers benefited from the study since the study availed policies toward environmental sustainability. According to Zhang and Sun (2022), financial inclusion is vital to address the challenge of CO₂ emissions and enhance sustainable development. The study relied on data from 1990 to 2021 and applied the ARDL analysis method. It was established that a rise in financial inclusion led to a decrease in emissions of CO₂. In general, environmental performance can be improved through digitalization. Furthermore, improving FI leads to easy access to the consumption of RE and higher EP:

The concept of the rule of law asserts that every person and every organization in a nation is responsible for the same laws and that these laws are justly implemented and upheld (Bakhsh, Alam, et al., 2024). It is crucial for establishing a stable and just society because it supports equality before the law, accountability and justice (Xiangling, 2024). Mihaela and Negri (2022) analyzed the association between environmental performance, carbon dioxide emissions, educational attainment and societal institutional quality. From 1991 to 2020, data was gathered from 43 countries. The study used three estimation methods. The findings indicated that CO₂ emissions were directly and positively correlated with all independent variables, including institutional integrity. The Rule of Law had a beneficial effect. The environmental performance was adversely affected by education, EG, fossil fuel energy consumption and industry. Environmental efficacy demonstrated a substantial positive correlation with renewable energy. Leogrande and Leogrande (2025) used data from the World Bank’s Environment Social and Governance-ESG database to estimate the Rule of Law for 193 countries. The Rule of Law was discovered to be positively correlated with regulatory quality and corruption control while negatively correlated with the prevalence of overweight and access to electricity, using a variety of econometric techniques. Four clusters were identified through a cluster analysis that used the Elbow method and the k-mean algorithm.

The study suggests that the rule of law should be modified to achieve pleasurable environmental impact and that regulatory quality should be enhanced in South Asian countries to promote an environmentally friendly environment. According to Wen (2022), the rule of law is crucial for advancing sustainable development in the green economy. This approach, strengthened by technological advancements, can promote sustainability and mitigate environmental damage. The study used data from 1998 to 2020. According to findings, the rule of law boosts economic growth and ecological improvement, whereas regions with high levels of development tend to consume more resources. With substantial investment, the green economy has the potential to accelerate economic growth and optimize economic structure, thereby reducing environmental stress and promoting long-term development in China.

Basrija (2019) investigated the influence of public governance on environmental performance. The study used significant aspects of public governance: rule of law, governmental accountability and regulator quality. It indicated that countries with robust economic performance frequently exhibit subpar environmental performance. The study involved 155 World Bank countries and used a prospective sampling technique and path analysis. The findings showed that government regulation’s nature, governance effectiveness and the rule of law significantly impact a nation’s environmental performance. The study suggested that economic growth, rule of law and environmental performance produce mutually valuable results. It provided insight into enforcing the rule of law for environmental performance:

The idea of voice and accountability refers to the capacity of citizens to play a role in selecting their government and monitoring its conduct. This idea is one of the governance indicators produced by the World Bank, which includes a range of concepts about how citizens can convey their choices and affect decision-making (Hao et al., 2023). Analysis of the results has highlighted that extraction means sustainability was negative in the long run, particularly resource-deficient extraction, which is conditionally positively related in the short run but has adverse effects when viewed from a long-term perspective. The study also supported this by establishing that economic liberty significantly affects sustainability due to aspects such as voice and accountability. The findings highlighted that the extraction-sustainability relationship is far from straightforward to navigate in a part of the world that is only beginning to develop at an alarming pace.

Hochwarter et al. (2014) investigated proactive voice, political perceptions and perceived accountability, whereby insurance employees’ job performance, job satisfaction and workplace tension were examined. Implications based on the findings proposed that when a proactive voice level was increased with perceived accountability and politics was high, such circumstances were likely to yield positive results. In contrast, a low proactive voice was likely to yield negative results. Accountability has positive and negative outcomes for organizations. The study contributes to understanding accountability outcomes by pointing out that circumstance and individual difference constructs make the difference between positive and negative results. In the study, Hochwarter et al. examined employees’ proactive voice, perceived political climate, perceived accountability for job performance, job satisfaction and perceived organizational conflict for insurance employees. The results showed that when high perceptions of accountability and politics were given, positive outcomes were realized if voiced high. On the other hand, the low score of proactive voice was revealed to have a strong negative correlation with the outcome. Overall, the study has value for the field knowledge on accountability outcomes because it introduces the components of the types of situations and persons that might affect the outcomes, whether positive or negative. Kelola et al. (2022) have noted that voices and accountability are relevant in the context of the government’s commitments regarding environment management and climate change. It is noted that environmental performance assessments in the public sector are essential for enhancing environmental consciousness in developing countries, including the Maldives. The study used qualitative research methods to address the research question on the relevance of ecological performance auditing in building public sector accountability, focusing on SAI Maldives’ contributions to voice and accountability.

Kwakwa and Aboagye (2024) investigated the NRs, VA and RI impacts on carbon emissions in the 32 African countries for the period 2002–2021. The result revealed that all factors including NRs, VA and RI have significantly positive impact on the CO₂ emissions. Thus, to decrease CO₂ emissions from NRs, it is necessary to enhance the quality of the regulations, carry out corruption control and support the citizens:

The quality of public services measures government efficacy, civil service excellence and independence from political pressure. The World Bank Group has developed a grading system to assess government competence (Hussain et al., 2023). Al-Mulali et al. (2022) studied the EKC hypothesis and how government effectiveness affects environmental degradation in 170 countries. The moment model is used to classify countries into three categories: The performance levels that they grouped include the efficient and reasonable performance levels and the non-very effective ones. It revealed that though both high and moderate government effectiveness had a low level of CO₂ emissions, the scenario regarding the EKC mechanism prevailed in the low-effectiveness countries. The research has policy implications for the countries that formed the sample for the study. Abduqayumov et al. (2020) target the degree of the government’s spending across the 15 post-Soviet states on environmental outcomes from 2001 to 2017. They use an instrumental variable technique and a large EPI to test endogeneity and dynamics. Thus, following the results of the provided analysis, it is possible to state that the efficiency of governmental activity impacts the environmental developments of post-Soviet countries, so the mentioned states should improve the institutional quality to satisfy the requirements of future generations.

Basrija (2019) examined the influence of public governance on the environmental performance of a nation, with a particular emphasis on four key factors: The four indices include political stability, accountability, regulatory quality and the efficiency of the government’s bureaucracy. In tune with the study’s research procedure, the research used a purposive sampling technique coupled with path analysis of 155 World Bank countries. The current research proved that politics, government accountability, political stability, quality of assurance and efficiency are determinant factors of the environmental performance of any country. Mihaela and Negri (2022) discovered that the measures of environmental performance and CO₂ emissions are related to society’s education level and institutional quality. Extracted information was obtained from 43 countries, and data gathering occurred between 1995 and 2020:

This study contributes to the literature by focusing on digital innovation, financial inclusion and governance in a detailed model to assess how these factors influence environmental performance in OECD nations. Unlike earlier research that focused on isolated factors like ICT significance in diminishing emissions or the impact of financial inclusion on economic growth, this study links these components together. The earlier works of Bhujabal et al. (2021) and Chen et al. (2022) examined ICT and environmental implications, but they overlocked addressing governance and financial inclusion, a gap this research fills. Also, this study implements the PMG-ARDL model to study dynamics over both the short and long term, supplying a more detailed insight into how these elements shape environmental performance. This research differed from earlier studies because it used longitudinal methods that capture sustained effects and are, therefore, more extensive. Finally, the study offers actionable policy perspectives, which were limited in earlier studies. This investigation identifies important environmental performance factors and suggests strategies for OECD countries to integrate digital innovation, green financing and governance reforms.

To analyze available literature to construct a conceptual framework, which developed the expected relationship among the constructs. The independent variables are an investment in ICT with private participation, financial inclusion, government effectiveness, rule of law, voice and accountability. Figure 1 depicts the graphical association between the variables.

This study uses annual panel data from OECD countries to examine the effects of digital innovation, financial inclusion and good governance on environmental performance. Thus, the panel data covers 25 OECD countries from 1991 to 2022. The study’s dependent variable was CO₂ emission per capita, which is used as a proxy of environmental performance, data acquired from the World Development Indicators (WDI) websites. Similarly, the data for the investment in ICT with private participation and financial inclusion are also gleaned from the WDI. Similarly, the data for the Rule of Law Voice and Accountability and Governance Effectiveness are gleaned from the World Governance Indicators (WGI). The study was carried out to enhance the Environmental Performance in the OECD Nations through Financial Inclusion, Digital Innovation and Effective Governance and the data are gathered from the WDI and WGI due to the accessibility to the variables. The description of the variables is mentioned in Table 1.

This section provides the rationale for employing the descriptive, cross-sectional dependency, unit root test, Westerlund test (cointegration) and PMG-ARDL. Descriptive statistics include mean, median, standard deviation and range values. Thus, the present study favors standard deviation and significant range values. Furthermore, the present study determines the normality of data. Jarque and Bera (1987) employs to determine the normality of the data.

Before examining the long and short-run effect among the variables to determine the presence and absence of cross-sectional dependency among the panel, several cointegration models, which are required to account for cross-sectional dependence, generate unreliable findings (Shabaz and Kumar, 2018). The present study used the CD test developed by Pesaran et al. (2004).

According to Ali et al. (2023) and Baksh et al. (2024), traditional unit root tests have found that problems occur when the presence of cross-sectional dependency in panel data. Therefore, the present study incorporates the second-generation unit root tests, including the common correlated effect (CADF) and cross-sectional augmented Dickey Fuller (CIPS) test proposed by Pesaran (2007).

Traditional first-generation cointegration tests have created skewed findings due to their limitations related to cross-sectional dependency issues and show inaccurate findings regarding long-run relationships among the variables. To deal with this issue, the present study used the cointegration test proposed by Westerlund (2007). Westerlund (2007) has been based on a specific factorial residual model. Westerlund (2007) represents the cointegration in different statistics, two of which are based on the mean group test and panel mean tests. The mean group test is used to check whether at least one unit in the cross-section exhibits cointegration while the panel mean test checks whether all the panel set exhibit cointegration. The mean group test is further explored through group-mean t-statistic (G_t) and group-mean adjusted t-statistic (G_a) as shown in equations (1) and (2). Similarly, the panel means test of the Westerlund cointegration is explored through panel t-statistic (P_t) and panel adjusted t-statistic (P_a) as shown in equations (3) and (4):

Gt, Ga, Pt and Pa represent the group-mean t-statistic and group-mean adjusted t-statistic, panel t-statistic and panel-adjusted t-statistic. Whereas SE represents the standard error and a_i represents the panel set.

The present study used the PMG-ARDL model to determine the impact of investment in ICT with private participation, financial inclusion, the government effectiveness, rule of law, voice and accountability on the environmental performance in OECD countries. Heterogeneous dynamic panels have been analyzed using Pesaran et al. (1999) technique. The PMG-ARDL model is suitable for analyzing panel data that can be integrated into different orders. The model can illustrate both short- and long-run dynamic interdependencies among the variables under consideration. Regarding this work, the PMG-ARDL model is suitable for evaluating the dynamic impacts of investment in ICT investment, financial inclusion, the rule of law, voice and accountability, and governance effectiveness. According to Pesaran and Shin (1998), the PMG-ARDL suits panel data facing cross-sectional dependency issues. The PMG confirms the endurance of the long-run coefficient even with the difference in short-run dynamics among the countries (Al-Mulali, 2011). The empirical model is shown in the following equation (5):

Whereas EP, IPP, FI, RL VA and GE represent environmental performance, investment in ICT with private participation, financial inclusion, rule of law, voice and accountability and government effectiveness. β1–β5 represent the long-term coefficient to be estimated, β₀ represents the intercept, ECT represents the speed of adjustment ranging from 0 to 1, t represents the time while I represent the cross-sections and Δ represent the difference.

Table 2 provides the statistical properties of six environmental performance and governance indicators. Simple averages indicate high variability in environmental performance, investment in ICT with private participation, financial access, rule of law-vulnerable accountability, and voice and government effectiveness. As the graph shows, the distribution is right-skewed, the median value is 2.915, and the max value is 2.915. The range of the environmental performance in the current study goes up to 25.148 and down to a low of 15.039. This shows that the level of financial inclusion ranged between countries from −0.159 to −2.879, which followed the result obtained. Generally, the rule of law has been made positively and negatively, as highlighted below, with a maximum of −0.159 and the lowest being −2.879. Voice and accountability also have similar fluctuations that suggest variation in the degree of democratic governance. Again, similar to the voice and accountability, there is still variation in the government effectiveness of the different countries. The Jarque-Bera test determines whether or not a set of data follows the normal probability distribution. The comparison of standard deviation and range shows the differences in the quality of governance, ICT investment and environmental results between the countries of the OECD.

The correlation matrix of six variables, including the Natural logarithm of Environmental Performance, Investment in ICT with Private Participation, Financial Inclusion, Rule of Law, Voice, and Accountability, and Government Effectiveness, shows a weak negative correlation between investment in ICT with private participation and environmental performance. As financial inclusion increases, environmental performance tends to decrease, possibly due to increased access to financial services leading to higher consumption and emissions. The rule of law has little to no linear relationship with environmental performance, while voice and accountability have a negligible impact. Government effectiveness and investment in ICT with private participation are positively correlated, suggesting that stronger democratic systems are linked with better government performance. Financial inclusion has a negative relationship with environmental performance, indicating that increasing access to financial services may lead to higher consumption and environmental degradation in the short run. Investment in ICT with private participation positively correlates with financial inclusion and the rule of law. This suggests that countries with better legal frameworks and financial systems tend to attract more private investment in ICT sectors. Most variables have weak correlations with environmental performance, suggesting that other factors significantly shape environmental outcomes in OECD countries. Results are demonstrated in Table 3.

The Pesaran et al. (2004) CD test is used in this study to measure the extent of cross-sectional dependency across OECD states. Based on these findings, we can conclude that the null hypothesis is rejected. As a result, OECD members rely on one another in various ways that benefit both parties shown in Table 4.

Table 5 shows the CD test findings, indicating cross-sectional dependency among OECD states. Upon initial analysis (I), all variables exhibit stationarity at first difference, rejecting the null hypothesis of a unit root.

The null hypothesis is rejected based on the cointegration (Westerlund) test findings, shown in Table 6. The results confirm the presence of cointegration between the variables. Therefore, the current study used an ARDL estimation long-term model to investigate the relationship between variables.

Table 7 displays the PMG-ARDL long-run estimation findings. Investments in ICT with private participation hurt CO₂ emissions. The decrease in CO₂ emission has caused improved long-run environmental performance of OECD countries. The obtained results (β = −0.019, t = −6.438 and p < 0.01) support H1a at a significance level of 1%. The findings of this analysis were consistent with those of prior investigations (Amari et al., 2022; Bhujabal et al., 2021; Jakada et al., 2023). Moreover, financial inclusion positively affects the long-term environmental performance of OECD countries because it contributes significantly to reducing CO₂ emissions. The obtained results (β = −0.315, t = −3.224 and p < 0.01) support H2a at a significance level of 5%, which are consistent with (Chaudhry et al., 2022; Khan and Rehan, 2022; Latif et al., 2023). Furthermore, the rule of law reduces CO₂ emissions. The decrease in CO₂ emission has caused improved long-run environmental performance of OECD countries. The data (β = −0.953, t = −3.287 and p < 0.01) support H3a at a significance level of 1%. The findings of this analysis were consistent with those of prior investigations. (Basrija, 2019; Mihaela and Negri, 2022). Furthermore, voice and accountability have a negative long-run impact on OECD countries’ environmental performance because they contribute significantly to enhancing CO₂ emissions. H4a was supported by results (β = 0.146, t = 4.876 and p < 0.01). The findings of this analysis were consistent with those of prior investigations (Costantiello, 2023; Kelola et al., 2022; Manu et al., 2024). Government efficacy has a positive impact on long-term environmental performance in OECD countries because it contributes significantly to reducing CO₂ emissions. H5a was accepted at p < 0.01 showing a β value of −0.281, t = 7.231 and a p-value less than 0.01, Findings are consistent with previous studies (Abduqayumov et al., 2020; Al-Mulali et al., 2022; Madhoo, 2013).

Table 8 shows the short-term estimates produced from the PMG-ARDL model. Investments in ICT with private participation hurt CO₂ emissions. The decrease in CO₂ emission has caused improved short-run environmental performance of OECD countries. H1b was statistically significant at p < 0.01 (β = −0.049, t = −3.167 and p < 0.01) Findings are consistent with previous studies (Chaudhry et al., 2022; Latif et al., 2023; Le et al., 2020). In addition, financial inclusion positively affects the short-term environmental performance of OECD countries because it contributes significantly to reducing CO₂ emissions. The obtained results (β = −0.059, t = −3.356, p < 0.01) support the acceptance of H2b at a significance level of 1%. The findings of this analysis were consistent with those of prior investigations (Koomson and Danquah, 2021; Wang et al., 2022; Zhang and Sun, 2022). Furthermore, the rule of law reduces CO₂ emissions. The decrease in CO₂ emission has caused improved short-run environmental performance of OECD countries. H3b is accepted with high confidence (1% significance level) based on data showing a β coefficient of −0.071, with a t-statistics of 3.160, and p < 0.01. This study’s findings were consistent with prior investigations (Castiglione et al., 2015; Mahmood et al., 2022; Wen, 2022). Likewise, voice and accountability have a negative short-run impact on OECD countries’ environmental performance because they contribute significantly to enhancing CO₂ emissions. The results indicate that H4b is viable at p < 0.01 (β = 0.035, t = 4.624 and p < 0.01). The findings of this analysis were consistent with those of prior investigations (Hochwarter et al., 2014; Costantiello et al., 2023; Kwakwa and Aboagye, 2024). Finally, government efficacy has a positive impact on short-term environmental performance in OECD countries because it contributes significantly to reducing CO₂ emissions. Thus, the obtained results, with a beta coefficient (β) of −0.019, with a t-value of −4.209, at p < 0.01, support the acceptance of H5b at p < 0.01. Findings are consistent with previous studies (Basrija, 2019; Mihaela and Negri, 2022).

Finally, CUSUM and CUSUMSQ show that the long-term estimation is stable. They also show the short-term link for the PMG-ARDL error correction term in Figures 2 and 3. Examining the CUSUM and CUSUMSQ charts allows you to determine the stability of each construct in the PMG-ARDL above models. If these plots remain inside the crucial boundaries of the 5% significance level, then the null hypothesis of stability for each construct is accepted.

Investment in ICT with private participation has contributed to minimizing CO₂ emissions and improving environmental performance in OECD countries. Therefore, it was also ascertained that direct investment in ICT with private participation negatively affects carbon dioxide emissions in OECD countries. This is because of technology, dematerialization, automation and optimization. ICT investments create technological progress to enhance energy use efficiency, lowering energy and CO₂ emissions. Such change has been prominent in OECD nations, where companies and governments use digital solutions at a high speed in lower mass economies. ICT investments from the private sector make it possible to automate and optimize industrial procedures in a way that can cut wastage and emissions. These changes to what has become known as “Industry 4.0” business practices drive CO₂ emissions down for the following reasons: ICT investments also help ensure electricity supply based on renewable energy instead of fossil fuel. Initiatives of this element in the private sector enhance ICT by supporting environmental regulations and corporate social responsibilities to provide positive conditions for private businesses to embrace green technology. Technological breakthroughs in the ICT industries have seen the use of energy-efficient technology in developing ICT structures, hence a decrease in CO₂ emission credit. There is an indication that ICT investments required to meet the emission reduction objectives in many OECD countries are set to rise as more countries focus on sustainability.

Moreover, the financial inclusion has contributed to minimizing CO₂ emissions and improving environmental performance in OECD countries. Therefore, financial inclusion, which refers to the ability of economic players to access various financial services, has been correlated to environmental conduct, especially concerning the volume of CO₂ emissions. Financial inclusion enables clients to cleaner technologies, encourage sustainable consumption and production, and fund long-run green investments. Thus, in the long run, the policies advocating for FI lead to stronger economies that are well-prepared to counter adverse environmental effects. This is done by backing long-horizon green investment, fostering green investment innovation and strengthening economic resilience. It also promotes efficiency gains in energy use through the uptake of energy-efficient gadgets, co-finances sustainable development projects and dematerializes the financial system. Most OECD members are global pioneers in advocating for increased access to financial services and products while protecting the environment through policies that encourage private enterprises’ development of green initiatives. Thus, enhancing environmental efficiency and facilitating the achievement of OECD countries’ climate objectives.

Furthermore, the rule of law has contributed to minimizing CO₂ emissions and improving environmental performance in OECD countries. Therefore, the result shows a positive relationship between CO₂ emissions in the short and long run when considering the rule of law. A robust rule of law that adheres to OECD nations substantially cuts emissions in the first place by enforcing environmental laws, quickly promoting eco-friendly technology and making business transparent and accountable. In the long run, the rule of law produces the legal and institutional development of sustainability and environmentalism. They enshrine environmental policy, underpin the long-term capex of green infrastructures and create resilient legal architectures that interlace sustainable growth to the environment. Innovation and green technologies are also fostered by extending the shield to patents and devising encouragement for research and development. The rule of law could reduce CO₂ emissions through regulatory certainty and coherence in policies, increased public participation in environmental policy and support for renewable energy sources. The OECD countries signed international environmental agreements, such as the Paris Agreement, which have complied with generally improved environmental performance associated with a strong rule of law. They have passed extensive ecological laws and created stable long-term climate policies that have helped maintain constant declines in CO₂ emissions. Sustained reductions come from institutionalized policies, investments in green infrastructure and innovations that the rule of law fosters in the country.

In addition, the voice and accountability have contributed to minimizing CO₂ emissions and improving environmental performance in OECD countries. Therefore, the short-run and long-run results highlighted that both voice and accountability significantly impact CO₂ emissions by introducing pressures that deepen the use of fossil energy sources and hinder the adoption of environmental reforms. Although these values are important for the proper functioning of the state and sustainable development, they can provoke emissions growth due to the priorities of economic, political and public benefits in the short term. Where voice and accountability holders are extremely vibrant, as in the OECD nations, the effect is a degradation of environmental outcomes, where policies that might decrease CO₂ emission rates are slowed, diluted or undone due to public and industrial pressure. Fragility and democratic governance are other important but unresolved issues facing political elites – how to maintain democratic arrangements while responding to the imperative of environmental change.

Finally, the government’s effectiveness has contributed to minimizing CO₂ emissions and improving environmental performance in OECD countries. Therefore, sensible public policies revealed that all types of government effectiveness decrease CO₂ emissions negativity in both the long and short run, impacting the OECD countries for better environmental performance. In the short run, well-performing governments can efficiently change policies that will negatively impact emissions, such as carbon pricing programs and renewable energy funding. In the long run, government effectiveness fosters planning for the future, creativity, proficient development of urban structures and continual CO₂ emissions reductions. For instance, in countries such as Sweden, Germany and Denmark, government effectiveness enables sustainable long-term environmental outcomes and puts these countries at the forefront of the protection against climate change. In this manner, by enhancing government effectiveness across OECD nations, it can achieve even better improvements in its environmental impacts and lingered carbon emissions intensity.

In conclusion, the panel data consists of 25 OECD countries from 1991 to 2022. Data were collected from the WDI website and used as the dependent variable. This section provides the rationale for employing the descriptive, cross-sectional dependency, unit root test, Westerlund test (cointegration) and PMG-ARDL. There is a statistically significant coefficient for the long- and short-run impact of investment in ICT with private participation, financial inclusion, rule of law, voice and accountability and government effectiveness on the environmental performance of OECD countries. Therefore, according to the results, H1–H5 have been accepted at a significant level of 1% and 5%.

The policy implications should include suitable digital innovation and culture in the financial inclusion area to enhance developed countries’ environmental output and performance. To improve the environmental efficiency in the developed nations of the OECD, to successfully integrate governance reforms, green financing and digital innovation. ICT investment can enable intelligent grids and IoT and support big data analytics; all these aspects can enhance energy efficiency and decrease waste and greenhouse gas discharge. Financial inclusion will open up opportunities for green financing for activities related to using renewable energy resources and sustainable technologies to cut down the carbon footprint in all sectors. Significant importance in the execution and sustaining of environmental laws is effective governance by independent agencies, clear and supreme laws and practical governmental transparency. Thus, governments need to support appropriate regulations for the policies, allowing them to be implemented, gaining the public’s confidence, and achieving sustainable development goals. Such a complex approach spearheads progress in environmental standards and economic and social development in OECD countries.

Some study limitations are discussed, and new research ideas are suggested. Some limitations arise from the fact that the study included only the OECD countries, and the findings cannot be applied to non-OECD nations with different socioeconomic and environmental statuses. The time frame chosen for the analysis from 1991 to 2022 may also exclude current tendencies and advancements in Environmental technology and policy. Hence, future research should incorporate more diverse data sets and possibly longitudinal studies capable of capturing recent trends and disruptions. Expanding the number of countries and indicators to include non-OECD countries would offer a more accurate outlook for global environmental effectiveness. In addition, future research may examine how emerging technologies, financial access and governance simultaneously use quantitative and qualitative approaches to understand better how all three interact.

The authors extend their heartfelt thanks to the editorial board and the anonymous reviewers for their valuable suggestions.

Funding: This work was supported by King Saud University, Riyadh, Saudi Arabia (Project No. RSPD 2024R932).

Data availability: The datasets used and analyzed during the current study are available from the corresponding author upon reasonable request.

Authors contributions: M.R. and M.N. contributed equally writing the original draft, conceptualization, analysis and revision. M.A. contributed to data curation, visualization, revision and funding.

Declarations: Ethics approval and consent to participate: This is an observational study. The authors confirmed that no ethical approval is required.

Competing interests: The authors declare no competing interests.