Sustainable urban development entails integration of environmental interests into decision‐making at the local level. To achieve this, higher tiers of government may compel municipalities to explicitly consider environmental objectives or even prioritize them by demanding compliance with national standards, thus, at least theoretically, restricting local government's room to manoeuvre in balancing all relevant interests. This paper explores the extent to which national standards narrow the range of local options and what this means for sustainable urban development. Adopting a multi‐level governance perspective on three cases of inner‐city redevelopment, we find that environmental standards are either not problematically restrictive or, if they are, sectoral policy offers ways to circumvent them. From a sustainability perspective, this may lead to undesirable outcomes. A combination of approaches may solve this predicament. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment