["Corporate Social Responsibility and Environmental Management, EarlyView. ", "\nABSTRACT\nAlthough Environmental, Social and Governance (ESG) practices are often linked to large corporations, small and medium‐sized enterprises (SMEs) are increasingly expected to embed ESG into their strategies. Yet many SMEs remain uncertain about whether ESG adoption delivers tangible performance benefits, and empirical evidence remains limited. Drawing on the resource‐based view (RBV), institutional theory and legitimacy theory, this study examines how organisational resources and capabilities relate to ESG strategy and how ESG adoption is linked to firm performance through organisational resilience. Using a three‐wave time‐lagged design, data were collected from 119 Malaysian SMEs and analysed using partial least squares path modelling. Findings indicate that both resources and capabilities are positively associated with ESG strategy, with capabilities exhibiting the stronger relationship. ESG strategy is positively related to organisational resilience, which in turn is linked to higher firm performance. Moreover, regulatory pressure strengthens the relationship between capabilities and ESG strategy but not that of resources, suggesting that external coercive pressures are more salient when firms possess stronger internal capabilities. The study contributes by integrating RBV, institutional and legitimacy perspectives to explain the antecedents and outcomes of ESG strategy, while offering practical insights for SMEs and policymakers on capability development, resilience building and performance improvement aligned with the Sustainable Development Goals.\n"]