There is a considerable debate on the effects of environmental regulation on competitive performance. Based on survey data, this paper analyzes the two main research questions, derived from literature, on the links between environmental regulation and competitiveness, by focusing on firms operating in the building and construction sector, i.e.: 1) whether environmental policy stringency affects the competitive performance of firms in the building and construction sector 2) and how a specific form of environmental regulation (direct regulation, economic instruments and soft instruments) affects this performance? By applying a regression analysis, we find that a more stringent environmental regulation, measured by inspection frequency, provides a positive impulse for increasing investments in advanced technological equipment and innovative products and on business performance. Moreover, a well-designed "direct regulation" appears to be the most effective policy instrument for prompting the positive impact of environmental policies on innovation and intangible performance while economic instruments do negatively affect business performance.