<p>Digitalization encompasses the broad spectrum of progressive changes in society and the economy. The role of digital technologies is crucial not only in enhancing economic growth but also in achieving sustainable development (SD). While existing literature has provided evidence on the impact of digitalization on CO2 emissions and SD, there is still a need for detailed direct and indirect diagnostics. This study is designed to thoroughly investigate the effects of digital transformation on SD, both directly and indirectly, using CO2 emissions as a mediation factor. Utilizing a structural equation model on data from Asian economies spanning from 1990 to 2021, we aim to test the association between digital transformation, SD, and CO2 emissions. We utilized data from seven Asian countries Pakistan, India, Bangladesh, Bhutan, the Maldives, Nepal, and Sri Lanka for the empirical analysis. The empirical results of our study reveal several key findings: (i) digital transformation has a direct, positive, and statistically significant impact on SD; (ii) digital transformation exhibits a negative association with CO2, suggesting its role in reducing emissions and improving air quality, (iii) the study demonstrates a positive indirect relation between ICT and SD, mediated by CO2 when SD is measured through GDP, (iv) conversely, the study illustrates a negative indirect relation between ICT and SD when SD is measured through financial development (FD), again mediated by CO2. These findings underscore the mediation role that CO2 plays between digital transformation and SD, contributing a unique perspective to existing research in Asian economies. The study confirms that digital transformation facilitates SD directly, implying a significant implication whereby digitalization encourages SD, decreases CO2 emissions, and enhances environmental quality. Consequently, formulating effective and sound policies to foster digital transformation is imperative for achieving SD while effectively managing climate-related impacts.</p>