Evaluating the Environmental Footprint of Digital Banking: A Step towards Sustainability

In the modern-day digital era, banking operations play a vital role in inducing environmental impact, particularly concerning carbon emissions. This study discovers the intricate link between the use of digital financial services and the carbon emissions of India’s top ten scheduled commercial banks. It utilizes panel data spanning the years 2019 to 2024, focusing on both the level of digital banking adoption and the reported carbon emissions from these institutions. The analysis employs various econometric techniques, including Pooled OLS to assess constant effects; the Breusch-Pagan test to determine the presence of fixed or random effects; Hausman and Wald tests to select fixed effects; and the LSDV (Least Squares Dummy Variable) regression method to analyze fixed effects with cross-sectional dependencies. Findings show a negative association between digital banking and carbon emissions, signifying that the augmented use of digital channels contributes to environmental sustainability by less reliance on physical resources. Though, this transition also leads to new challenges like cyber-security threats, financial fraud, and electronic waste. The results suggest enhancing digital banking infrastructure and implementing financial literacy programs to tackle these emerging risks. The research adds to the rising discourse on green finance by presenting empirical evidence of how technological adoption in banking can contribute to achieving broader climate objectives.