This study explores the impact of environmental sustainability on the performance of Peruvian micro-, small, and medium-sized enterprises (MSMEs) under mediation by digital transformation and innovation. The study is based on partial least squares structural equation modeling (PLS-SEM) with questionnaire data from a sample of 345 Peruvian MSMEs. Digital transformation directly improved performance and promoted innovation. Environmental sustainability acted as a technology pull factor, encouraging digital transformation and innovation. Innovation had the most significant direct effect on performance. Theoretically, the study extends capability alignment theory to a developing-country context. Empirically, it demonstrates that environmental sustainability primarily influences performance indirectly via digital transformation and innovation, a rarely explored pathway in the context of Latin America. The study also offers region-specific evidence on the magnitude of these mediated relationships. From a managerial perspective, the results highlight the importance of incorporating environmental sustainability objectives into digital transformation and innovation strategies. Policy implications include the need to design policies that combine support for environmental compliance with funding for digitalization and innovation training. The limitations of the study highlight the value of performing longitudinal, segmented, and multi-country replication studies across Latin America.