Unlocking Green Growth: The Role of Business Environment in Enhancing Environmental Sustainability

ABSTRACT South Korea faces a persistent tension between export‐led industrial growth and rapid decarbonization, making an integrated view of institutional, financial, technological, and governance levers essential. This study quantifies how business‐environment quality and related mechanisms shape environmental sustainability. Annual national data for 1998–2023 are used, including regulatory efficiency, green finance, energy transition, digitalization, corporate environmental disclosure, and green technology innovation. An autoregressive distributed lag model with bounds testing and an error‐correction term identifies short‐run dynamics and long‐run equilibrium; Kernel‐based Regularized Least Squares provides nonlinear robustness. Results show significant long‐run reductions in CO 2 per capita across all factors, with the largest effect from energy transition, followed by regulatory efficiency, green innovation, green finance, digitalization, and disclosure. Cointegration is confirmed; diagnostics indicate well‐specified, stable estimates; the error‐correction coefficient implies gradual but steady adjustment toward equilibrium. Robustness checks reproduce sign and magnitude patterns. The evidence indicates that streamlined regulation, credible disclosure, green intermediation, digital capabilities, and renewable substitution operate as complementary channels. Policy design should therefore combine enforcement reforms, scalable green finance, accelerated renewable integration, and firm‐level digital and innovation investment. These steps are suited to bank‐mediated, supply‐chain‐dense economies and offer a practical path to durable abatement.