Conducting research into the multifaceted aspects of environmental regulation and the pivotal role played by digitalization in promoting sustainable innovation represents an invaluable compass guiding the path toward green development. However, it receives little attention in Small and Medium-Sized Enterprises (SMEs). This study examines the impact of environmental regulations on sustainable innovation in SMEs and the moderating role of digitalization. Findings from a panel of 871 SMEs over the period 2012-2020 reveal that command control and public-participative regulations have a U-shaped relationship with green innovation in SMEs, with digital tools accelerating their effects. Market-incentive regulations exhibit an inverted U-shaped effect, with digitalization enhancing the benefits of pursuing green incentives. These insights emphasize the importance of tailored approaches that consider regulatory diversity and the transformative potential of digitalization in promoting green development within SMEs.
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