Green finance has emerged as an important instrument for promoting sustainable development and supporting corporate environmental performance (CEP). However, its effectiveness remains uneven across developing economies, where financial constraints, limited technological capabilities, and economic policy uncertainty (EPU) may constrain firms’ ability to translate green financial resources into environmental outcomes. Despite growing research on green finance, limited empirical evidence explains how technological capabilities, innovation mechanisms, and policy conditions jointly shape its effectiveness, particularly among small and medium-sized enterprises (SMEs) in developing countries. To address this gap, this study develops and empirically tests the Adaptive Green Finance Effectiveness Theory (AGFET), which conceptualizes green finance effectiveness as a conditional resource-conversion process shaped by technological enabling capabilities, innovation, and the policy environment. Using primary cross-sectional survey data collected from Sri Lankan SMEs operating in the manufacturing and service sectors, the study employs Partial Least Squares Structural Equation Modelling (PLS-SEM) to examine the relationships among green finance, CEP, green innovation, FinTech inclusion, and perceived economic policy uncertainty. The findings reveal a significant positive association between green finance and CEP, both directly and indirectly through green innovation. FinTech inclusion positively moderates the relationship between green finance and CEP, indicating a stronger positive association at higher levels of digital financial inclusion. Conversely, perceived economic policy uncertainty negatively moderates this relationship, indicating that the positive association between green finance and CEP becomes weaker under greater perceived policy uncertainty. Given the cross-sectional and self-reported nature of the data, these findings are interpreted as theory-consistent associations rather than definitive causal effects. Overall, the results provide empirical support for the conditional relationships proposed by AGFET and suggest that green-finance effectiveness varies according to firms’ technological capabilities, innovation mechanisms, and perceived policy conditions. The study contributes to sustainable finance research by advancing a context-dependent explanation of green-finance effectiveness and provides implications for policymakers, financial institutions, and SME managers in developing economies.