This article examines innovative approaches to regulating the environmental performance of vehicle body shops, in the state of Victoria, Australia. Based on field research, this provides a useful opportunity to not only identify the limitations of the environmental management practices (including regulatory resistance, a lack of resources and cultural obstacles), but also the failure of conventional regulatory approaches to adequately address and overcome problematic characteristics typical of small and medium sized enterprises (numerous, geographically dispersed, environmentally unsophisticated and, collectively, a substantial source of pollution). Particular focus is given to cleaner production, partnerships and environmental management systems in improving environmental performance. We also consider the potential role of ‘regulatory surrogates’ as an adjunct to a mix of government regulatory initiatives. Copyright © 2002 John Wiley & Sons, Ltd. and ERP Environment.