Over recent years, digital transformation and the implementation of the Sustainable Development Goal (SDG) have gained prominence in public administration research. This study investigates the institutional barriers and the role of artificial intelligence (AI) in advancing SDGs in Estonian local governments. Drawing on Scott’s institutional theory and the concepts of isomorphism and decoupling, the research analyzes how regulatory, normative, and cultural-cognitive pillars shape local governance practices. Empirical data, including interviews and document analysis, reveal critical challenges such as resource constraints, insufficient strategic planning, and competency gaps, particularly in smaller municipalities. While larger municipalities demonstrate advanced digital infrastructure and AI integration, smaller ones struggle to adopt innovative solutions, hindering progress toward responsible consumption (SDG 12), climate action (SDG 13), and green energy (SDG 7). Findings indicate a disconnect between formal policies and their practical implementation, underscoring the need for systematic planning and robust monitoring mechanisms. AI is highlighted as a potential enabler for improving decision-making and operational efficiency, yet its adoption remains limited. This study concludes that achieving SDGs requires tailored support mechanisms, strengthened institutional capacities, and regional collaboration. It contributes to understanding digital transformation in local governance, offering insights into leveraging innovation for sustainability objectives.
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