This paper investigates the relationship between Green Absorptive Capacity (GAC) and Green Innovation (GI) on Environmental Performance (ER) using the moderation role of Environmental Regulations (ER). A survey method was employed by the researchers to gather data from a sample of 467 SMEs manufacturing firms in Pakistan, with participation from management. The researchers employed Partial Least Squares-Structural Equation Modeling version 4 (PLS-SEM) to analyze the data and evaluate the hypotheses. Based on the Resource-Based View theory (RBV), the results indicate a positive and significant relationship between GAC and GI, and GI indicates a positive and significant relationship between EP. ER indicates a negative significance between GI and EP. This study provides valuable insights for SMEs manufacturing firms, suggesting that they should utilize GAC for GI implementations to enhance EP, financial, and social performance. This study establishes that GAC plays a crucial role in facilitating the successful implementation of GI and moderating ER, thereby leading to enhanced and more sustainable EP.