<p>This study examines how knowledge-based strategic capabilities are translated into environmental performance in manufacturing firms. Drawing on dynamic capabilities theory, stakeholder theory, and contingency theory, the study investigates the effects of Strategic Sustainability Orientation, Innovation Capability, and Stakeholder Integration on Environmental Performance through Operational Efficiency, while also examining the moderating role of Market Dynamism. Using survey data from 511 Chinese manufacturing firms and Partial Least Squares Structural Equation Modeling, the findings show that Strategic Sustainability Orientation, Innovation Capability, and Stakeholder Integration significantly improve Operational Efficiency, which in turn enhances Environmental Performance. Operational Efficiency mediates the relationships between the three strategic capabilities and Environmental Performance, indicating that sustainability-related knowledge and strategic intent must be converted into resource productivity before they generate measurable environmental benefits. Market Dynamism strengthens the effects of Strategic Sustainability Orientation and Stakeholder Integration on Operational Efficiency, but weakens the relationship between Innovation Capability and Operational Efficiency. This negative moderation suggests an innovation-efficiency paradox in volatile markets, where innovation may create short-term complexity, implementation costs, and operational disruption before efficiency gains materialize. The study contributes to the knowledge-economy and sustainable-development literature by showing how firms convert sustainability orientation, innovation routines, and stakeholder knowledge into operational mechanisms that support environmental performance. The findings also connect firm-level capabilities with SDG 9 and SDG 12 by highlighting the role of innovation, resource productivity, and responsible production in sustainable industrial development.</p>