["Business Strategy and the Environment, EarlyView. ", "\nABSTRACT\nThis study examines how digital strategic orientation (DSO) and environmental practices (EP) interact to shape innovation and performance among Chilean SMEs. Using survey data from 271 firms (February–May 2022), we estimate a generalized structured component analysis (GSCA) model that accommodates a nonrecursive relationship between DSO and EP. The findings indicate that DSO and EP mutually reinforce one another and that both are positively associated with innovation, which subsequently enhances performance. EP does not display a direct effect on performance; instead, its contribution operates indirectly through innovation. Performance gains emerge mainly via innovation. The study offers implications for research and for managers and policymakers in emerging economies seeking to strengthen competitiveness through coordinated digital and environmental initiatives.\n"]