The relationship between artificial intelligence and environmental performance: the mediating role of external environmental factors

Despite the growing recognition of artificial intelligence in enhancing environmental performance, the pathways through which artificial intelligence influences environmental performance and the role of external factors, i.e., carbon emission strategies and sustainability regulations, in this relationship are unexplored. Data were collected from 387 employees of small and medium enterprises in Pakistan. Our empirical analysis confirms a positive relationship between artificial intelligence use and environmental performance. The results also reveal that external factors mediate and intensify the association between artificial intelligence and environmental performance. These findings are aligned with dynamic capability theory, which suggests that artificial intelligence tools with external factors can enhance small and medium enterprises’ capabilities to achieve sustainable development goals and improve environmental performance. This study has some practical and social implications for stakeholders, i.e., owners, policy-makers, and managers of small and medium enterprises in emerging economies, to promote sustainable practices and environmental performance of businesses. As per the researcher’s knowledge, this study is the inaugural investigation into the influence of artificial intelligence on environmental performance, considering the mediating role of external environmental factors and employing dynamic capability theory within the context of small and medium enterprises in Pakistan.