Green innovation and sustainable performance nexus: evidence from Indonesian manufacturing small and medium enterprises

The issues of environmental pollution and natural resource degradation demand the active involvement of all sectors, including Small and Medium Enterprises (SMEs). Considering the vital yet often overlooked role of SMEs in sustainability agendas, this study seeks to examine the antecedent factors driving the adoption of green innovation within SMEs and to explore its consequences for achieving sustainable performance across economic, social, and environmental dimensions. Drawing on the theoretical frameworks of the Natural Resource-Based View (NRBV) and Institutional Theory, this study emphasizes digital transformation, innovation capability, government support, and customer pressure as the key drivers of green innovation. Furthermore, SMEs’ sustainable performance is conceptualized as the consequence of adopting green innovation. Using a purposive sampling method, this study employed a quantitative design to collect data from 257 respondents representing SMEs in the manufacturing sector across Java Island, Indonesia. By employing structural equation modeling (SEM), the empirical findings reveal that digital transformation, innovation capability, government support, and customer pressure significantly foster green innovation. Furthermore, the results provide evidence that green innovation positively influences the economic, environmental, and social performance of SMEs in Indonesia. Practically, the findings guide SMEs and policymakers in Indonesia to strengthen strategies that foster sustainability