<p>Environmental, Social, and Governance (ESG) variables assess a business’s non-financial performance. While some scholars contend that implementing ESG initiatives boosts a company’s value and performance by cutting costs and unsystematic risks, others see them as a waste of financial resources. To shed light on this uncertainty, this study examines how ESG activities impact the two critical success factors of a firm: firm resilience and sustainable performance. This study also fills a gap in the literature by examining how digital capabilities affect corporate resilience and sustainable performance in SMEs. To achieve this, the study gathered data from SME firms operating in the large industrial cities of Pakistan through a questionnaire survey. It employed a partial least squares structural equation model (PLS-SEM) to analyze the relationships between ESG practices, digital capabilities, business resilience, and sustainable performance. The findings indicate that ESG initiatives positively and significantly affect sustainable performance but are insignificant in the case of firm resilience. Furthermore, the relationship of digital capabilities with business resilience and sustainable performance was significant. The results have broad implications for scholars and corporate executives, enabling them to more fully appreciate the worth of ESG initiatives and efficiently distribute and arrange resources.</p> Graphical abstract <p></p>