Small and medium-sized enterprises (SMEs) play a critical role in achieving environmental sustainability, particularly in developing economies where regulatory enforcement and resource constraints remain significant challenges. Drawing on Institutional Theory, this study examines how green leadership influences environmental performance in Ghanaian SMEs, with digital innovation as a mediating variable and environmental culture as a moderating variable. Institutional Theory provides the conceptual foundation for explaining how normative pressures embedded in leadership values and organizational culture, alongside mimetic pressures associated with digital innovation adoption, shape firms’ environmental outcomes. Using survey data collected from SMEs in Ghana and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM), the results revealed that green leadership has a significant positive effect on both digital innovation and environmental performance. Digital innovation also significantly enhances environmental performance and partially mediates the relationship between green leadership and environmental performance. Notably, the findings demonstrated that environmental culture significantly moderates the relationship between digital innovation and environmental performance, with the effect stronger in organizations with a well-developed environmental culture. This indicates that internalized environmental values amplify the effectiveness of digital innovation initiatives. The study contributes to the sustainability and organizational literature by extending Institutional Theory to the SME context in a developing economy and by clarifying the conditional role of environmental culture in translating digital innovation into superior environmental performance. Practically, the findings suggest that SME leaders and policymakers should promote environmentally oriented leadership, invest in digital innovation, and cultivate strong environmental cultures to enhance sustainability outcomes.