The sustainability performance of cities is subject to an ever‐growing number of monitoring tools. While most initiatives work with outcome indicators that are generally associated with limited direct policy relevance, a minority of tools focuses on sustainability‐related processes and particularly local government policies. In this article, we explore the benefits, limitations and conditions under which this approach can function. While several process‐oriented tools offered to European local governments have lacked participation and foundered, the Local Sustainability Meter (LSM) has been widely used in the Netherlands, with close to 90% of all Dutch municipalities participating since 1999 in some of its multi‐year editions. An evaluative case study presented in this article shows that the LSM stimulated competition for policy performance, conceptual learning and the strengthening of local governance and inter‐municipal networks. The LSM's design choices of combining voluntary, transparent self‐assessments at periodic intervals with public rankings and awards proved to be an effective – and economic – way of disseminating sustainability policies. Its limitations include an inherent focus on generic, standardized policy prescriptions and little knowledge on actual sustainability outcomes. These findings are relevant for policy‐makers and developers of (local) sustainability monitoring tools. This study contributes to the growing literature on (i) sustainability policies and (ii) municipal monitoring and ranking tools. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment