Enabling sustainable performance in indonesian manufacturing SMEs: The role of innovation, ethics, and digital capabilities

Small and medium-sized enterprises (SMEs) in emerging economies face growing pressure to adopt sustainable practices, yet the determinants of green innovation remain underexplored. Drawing on dynamic capabilities theory (DCT), this study examines how digital capabilities, green entrepreneurial orientation, environmental ethics, and stakeholder pressure influence green innovation and sustainable performance among Indonesian manufacturing SMEs. Data from 225 SMEs were analyzed using partial least squares structural equation modeling. The findings reveal that all four antecedents significantly influence green innovation, with environmental ethics emerging as the strongest driver, followed by digital capabilities and green entrepreneurial orientation. Stakeholder pressure also shows a positive but weaker effect, suggesting that external pressures function as complementary rather than primary drivers. Green innovation significantly improves environmental, financial, and social performance. The study extends DCT by demonstrating how internal capabilities and external pressures jointly support sustainable innovation and offers practical implications for SME managers and policy makers seeking to enhance sustainability and long-term competitiveness.