In recent years, environmental, social, and governance (ESG) practices have progressively become a central component of corporate strategies and investment decisions. Although ESG is often associated with corporate social responsibility (CSR), the two concepts differ in important ways. CSR typically refers to voluntary initiatives oriented toward responsible business conduct, whereas ESG is based on standardized and measurable indicators that enable stakeholders to assess companies’ sustainability performance in a more systematic and comparable manner. The growing relevance respect to ESG practices is driven by increasing societal awareness of sustainability challenges, stronger stakeholder expectations, and the evolution of regulatory frameworks aimed at promoting sustainable development However, the mechanisms that support ESG implementation among small and medium-sized enterprises (SMEs), as well as the potential competitive benefits associated with these practices, remain only partially explored. This study investigates the role of artificial intelligence (AI) and sustainability management (SM) as key drivers of ESG adoption and competitive perspectives in innovative SMEs. The empirical analysis is conducted using Partial Least Squares Structural Equation Modelling (PLS-SEM) on a sample of 163 Italian innovative SMEs located in Lazio Region. Data were collected through a structured online questionnaire administered to company representatives involved in strategic and innovation-related decision-making processes. The results show that both AI and SM significantly contribute to the adoption of ESG practices across environmental, social, and governance dimensions. However, only AI exerts a direct positive effect on competitive perspectives, while SM influences competitiveness indirectly through ESG practices. Furthermore, the ESG dimensions do not equally affect competitive outcomes. The environmental and governance dimensions positively influence competitive perspectives, whereas the social dimension does not exhibit a statistically significant effect. These results provide new insights into the mechanisms through which technological and managerial factors support sustainability-oriented strategies and competitiveness in SMEs, highlighting the importance of integrating digital capabilities and structured sustainability practices.