Digitalising Is Not Digitalising for Sustainability: Decomposing the Digital Transformation–ESG Relationship in African Listed Firms
This study of 80 African listed firms rejects the hypothesis that digital transformation has a nonlinear U-shaped relationship with ESG performance, demonstrating instead that only digital capabilities explicitly directed toward sustainability processes drive ESG improvements, while general digital intensity alone has no significant effect.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
In the modern business world, two powerful forces are reshaping how companies operate. The first is digital transformation, the sweeping adoption of computers, software, and data systems to run a business more efficiently. The second is the push for environmental, social, and governance performance, often called ESG, which measures how well a company cares for the planet, treats its people, and manages its leadership. For years, the prevailing wisdom has been that these two forces work hand in hand. The assumption is simple: if a company gets better at using technology, it will automatically become better at being sustainable. The logic is that digital tools allow for sharper measurements of pollution, better tracking of supply chains, and more transparent reporting. However, the real-world evidence has been messy. Some studies show a strong link between technology and sustainability, while others show no link at all, or even a negative one. This confusion has led researchers to wonder if the relationship is complicated, perhaps starting with a difficult, costly transition period before eventually paying off.
A team of researchers from universities in Ghana and a bank in Accra decided to cut through this confusion by looking closely at how African companies are actually using these tools. They gathered data on eighty listed firms across four major African stock exchanges—South Africa, Nigeria, Kenya, and Ghana—tracking their performance over a decade, from 2015 to 2024. Their goal was to test a popular theory that suggests the relationship between digital technology and sustainability follows a U-shaped curve. This theory posits that when companies first start digitizing, their sustainability scores might actually drop because of the costs and disruptions involved, only to rise sharply later once the new systems mature. To test this, the researchers used rigorous statistical methods designed to detect such curves, rather than just guessing based on general trends.
What they found was that the U-shaped theory simply does not hold up in this data. The relationship is not a curve with a dip and a rise; it is flat. When the researchers looked at the overall amount of digital technology a company uses, they found no connection to how well that company performed on sustainability metrics. A company could be highly digital, with advanced systems and vast data capabilities, and still have a poor record on environmental or social responsibility. This result challenges the idea that simply buying more technology is the key to becoming a greener, more responsible business. The researchers realized that the confusion in previous studies likely came from how they measured "digital transformation." By treating all digital adoption as a single, lumped number, earlier studies were mixing together two very different things: the sheer volume of technology a company has, and the specific way that technology is used.
To solve this puzzle, the researchers broke the concept of digital transformation into two distinct parts. The first part was digital intensity, which measures how much technology a company has adopted in general. The second part was sustainability-purposed digital integration, which measures how much of that technology is specifically directed toward sustainability goals, such as tracking carbon emissions or managing community relations. When they separated these two, the picture became clear. The sheer volume of technology, or digital intensity, had no effect on sustainability scores. However, the specific use of technology for sustainability purposes had a powerful, positive effect. Companies that deliberately used their digital tools to manage environmental and social processes saw significant improvements in their sustainability performance. In fact, once the researchers accounted for this specific use, the general amount of technology a company had actually showed a small positive effect, suggesting that the two work best when the technology is pointed in the right direction.
The study also investigated whether outside factors changed these results. One common belief is that companies facing high climate risks, such as those in mining or energy, would get a bigger boost from digital tools because the pressure to act is so high. The researchers found the opposite to be true. For these high-risk companies, the link between general digital adoption and sustainability was actually weaker. The researchers suggest this is because the environmental challenges for these firms are physical—related to the age of their machinery or the type of fuel they burn—rather than informational. Digital tools can measure these problems better, but they cannot fix the physical machinery itself. The study also looked at whether the quality of government institutions or the presence of state ownership changed the outcome, but found no evidence that these factors made a difference.
Perhaps the most surprising finding was about timing. The strong link between using technology for sustainability and better performance only existed in the same year. When the researchers looked at whether digital investments made in one year led to better sustainability scores the following year, the connection disappeared. This suggests that the relationship is not a simple cause-and-effect where technology is installed and then, over time, yields results. Instead, it appears that companies with a strong commitment to sustainability are likely to invest in both digital tools and sustainability goals at the same time. The technology and the performance rise together because they are driven by the same underlying strategy, not because one mechanically produces the other.
The researchers were careful to note that their data included a substantial number of variables that were synthetically generated for the study rather than collected from official public records or archives. This includes the digital transformation index itself. Because of this, the specific numbers should be viewed as a demonstration of a method and how different measurements change conclusions, rather than as a final census of African business. However, the logic of their discovery is robust. The study concludes that the contradictory findings in the field are not due to a complex, non-linear curve, but to a measurement problem. When researchers mix together the general use of technology with the specific use of technology for good, they get a confusing average that hides the truth. The real story is that digital transformation is not a magic wand that automatically improves sustainability. It is a tool that only works when it is intentionally aimed at the problem. A company can be fully digital and still fail at sustainability if it does not direct its digital power toward those goals. Conversely, when a company aligns its technology with its sustainability mission, the results are immediate and significant.
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