Digital Financial Innovation and Sustainable Development: Cross-Countries Analysis and ESG Risks Management

This study assesses how a country’s digitalization impacts sustainability indicators as measured by unmonitored environmental, social and governance (ESG) risks, which serve as a proxy for the development of financial technology (FinTech). The study employs a cross-country approach using data for up to 163 countries, going beyond the firm-level focus of previous studies. The DiGiX Digitalization Index and the ICT Development Index are used to measure digitalization, while pillar-level indicators and Sustainalytics ESG country risk scores are used to assess ESG indicators. With evidence of nonlinear, threshold-type effects at higher levels of digitalization, the regression results suggest a strong negative correlation between digital maturity and ESG risk. Different country typologies are further identified using unsupervised cluster analysis, which reveals a continuous digital and ESG gradient in environmental, social and governance aspects. The analysis proves digitalization serves as a systemic enabler of ESG risk management by strengthening data availability, governance capacity and policy enforcement. These findings provide policy-related guidance for coordinating digitalization strategies in line with the Sustainable Development Goals.