This study examined the performance of environmentally conscious small and medium-sized enterprises (SMEs) in the fashion industry focusing on implementing green business strategies and cultivating innovation skills for eco-friendly practices. Using Structural Equation Modeling with Partial Least Squares (SEM-PLS), data were collected through a survey from 94 natural batik artisans and organic leather craftsmen creatives SMEs in Bantul Regency. Results revealed that a green business strategy effectively mediates the relationship between environmental orientation and business performance. However, the direct link between environmental orientation and business performance was not significant. Similarly, environmentally friendly innovations did not significantly enhance corporate performance as creative SMEs struggle to meet environmentally conscious client preferences. The mediation of green innovation on the relationship between green market orientation and business performance also showed insignificant results. The lack of impact is attributed to slow responses by SMEs to regulatory demands, such as the green branding for natural colored batik products. The novelty of this research lies in emphasizing the green business strategy as a mediator, enforcing SMEs to reveal both external and internal environments factors to boost performance effectively.

Keywords: Business Performance, Environmental Orientation, Green Market Orientation, Green Business Strategy, Green Innovation