Small and medium-sized firms (SMEs) play a critical role in every economy, contributing significantly to
gross domestic product (GDP) and employment creation. However, tackling the negative environmental
effect of SMEs is critical to their overall performance. Achieving sustained success necessitates a mix of
elements that create a competitive advantage and assist the accomplishment of triple-bottom-line
objectives. While previous research has explored business performance and sustainability individually,
there is minimal understanding of how sustainability performance impacts firm performance, with
sustainable competitive advantages serving as a mediator. Our continuing research aims to fill this
knowledge gap by investigating the influence of sustainability performance on firm performance, particularly
in SMEs businesses, and by investigating the possible mediating role of sustainable competitive
advantages. We assess sustainability performance across three dimensions: economic, environmental,
and social. Financial and market performance, quality performance, and innovation performance are used
to evaluate firm performance. We use partial least squares structural equation modeling (PLS-SEM) to
analyze data from 370 SMEs firms in Pakistan. Our findings give empirical support for the Resource-Based
Theory stressing dynamic capacities and provide useful insights for SMEs on effective resource allocation
and the implementation of sustainable practices. However, this study has limitations, including its focus on
SMEs in Pakistan, which may limit the generalizability of the findings to other regions and sectors. Future
research should consider broader geographic and industry contexts to validate these results. This work
makes a theoretical and managerial contribution to improving corporate performance.