Turning Climate Challenges into Sustainable Growth: The Role of Innovation, Finance, and Clean Energy in Pakistan's Industrial Future

This study examines the dynamic interplay between climate risk, AI-driven innovation, financial inclusion, renewable energy adoption, and digital infrastructure in shaping sustainable industrial growth across 2000–2024. Utilizing quantile and threshold regression techniques, the analysis captures distributional heterogeneity and non-linear effects across varying levels of innovation intensity. Results indicate that climate risk, proxied by CO₂ emissions per capita, consistently undermines industrial sustainability, with its adverse impact amplifying at higher innovation levels. In contrast, ICT service exports (as a proxy for AI innovation), domestic credit to the private sector, renewable energy consumption, and internet usage exert significant positive effects, especially in upper quantiles of the growth distribution. These findings suggest that the gains from technological and financial modernization are contingent on a Pakistan’s innovation capacity. Threshold regression reveals structural shifts, highlighting that the influence of policy variables varies across stages of digital and technological advancement. The study contributes to the literature on industrial sustainability by demonstrating the conditional and stage-specific nature of key growth drivers. Policy recommendations emphasize tailored strategies—particularly for emerging economies—to promote industrial resilience through innovation, inclusive finance, clean energy, and digital connectivity, while addressing climate vulnerabilities.