Strongly correlated insulators are broadly divided into two classes: Mott-Hubbard insulators, where the insulating gap is driven by the Coulomb repulsion U on the transition-metal cation, and charge-transfer insulators, where the gap is driven by the charge-transfer energy Δ between the cation and the ligand anions. The relative magnitudes of U and Δ determine which class a material belongs to, and subsequently the nature of its low-energy excitations. These energy scales are typically understood through the local chemistry of the active ions. Here we show that the situation is more complex in the low-dimensional charge-transfer insulator Li₂ CuO₂, where Δ has a large non-electronic component. Combining resonant inelastic X-ray scattering with detailed modelling, we determine how the elementary lattice, charge, spin and orbital excitations are entangled in this material. This results in a large lattice-driven renormalization of Δ, which significantly reshapes the fundamental electronic properties of Li₂ CuO₂.