Environmental degradation is a major challenge for sustainable development in Iran, where environmental outcomes are shaped by the interaction of socioeconomic, institutional, and macroeconomic conditions. This study examines the relationships between income inequality, human development, institutional quality, and environmental degradation in Iran over the period 1990–2020. Environmental degradation is measured using the ecological footprint, while the Gini coefficient, Human Development Index, and a composite institutional quality indicator, respectively represent income inequality, human development, and institutional quality. GDP per capita, financial development and renewable energy consumption are included as control variables. The study employs a nonlinear autoregressive distributed lag (NARDL) framework to examine both short-run and long-run relationships and to account for asymmetric responses to changes in selected explanatory variables. The results indicate that income inequality significantly increases environmental degradation in both the short run and long run, with coefficients of 1.323 and 1.220, respectively (p < 0.01). Human development also has a positive and statistically significant long-run effect, with a coefficient of 6.088 (p < 0.01), suggesting that improvements in human development have occurred alongside increasing environmental pressure. Institutional quality likewise exhibits a positive and significant long-run coefficient of 0.145 (p < 0.01), indicating that improvements in measured institutional conditions have not translated into proportional reductions in environmental degradation. GDP per capita has a positive short-run effect but an insignificant long-run coefficient, whereas financial development reduces environmental degradation in the short run. Renewable energy consumption exhibits significant asymmetric effects: positive changes increase the ecological footprint, while negative changes reduce it. The error-correction coefficient of −1.379 (p < 0.01) confirms rapid adjustment toward long-run equilibrium. The findings highlight the importance of addressing inequality, institutional effectiveness, and the structure of the energy transition simultaneously when designing environmental policies for Iran.