Technological innovation is a key factor for achieving a better environmental performance of firms and the economy as a whole, to the extent that helps increasing the material/energy efficiency of production processes and reducing emission/effluents associated to outputs. Environmental innovation may spur from exogenous driving forces, like policy intervention, and/or from endogenous factors associated to firm market and management strategies. Despite the crucial importance of research in this field, empirical evidence at firm microeconomic level, for various reasons, is still scarce. Microeconomic-based analysis is needed in order to assess what forces are lying behind environmental innovation at the level of the firm, where innovative practices emerge and are adopted. The paper exploits information deriving from two surveys conducted on a sample of manufacturing firms in the Emilia Romagna region -Northern Italy- in 2002 and 2004, located in a district-intense local production system. New evidence on the driving forces of environmental-related innovation is provided by testing a set of hypothesis, concerning the influence of: (i) firm structural variables; (ii) environmental R&D; (iii) environmental policy pressure and regulatory costs; (iv) past firm performances; (v) networking activity and knowledge spillovers, characterising firms in industrial districts, (vi) other non-environmental techno-organizational innovations and (vii) quality/nature of industrial relations. We estimate various input and output-based environmental innovation reduced form specifications in order to test the set of hypothesis. The applied investigation shows that environmental innovation drivers, both at input and output level, are found within exogenous factors and endogenous elements concerning the firm and its activities/strategies within and outside its natural boundaries. Both environmental and non environmental structural elements of the firm are relevant for explaining environmental innovative dynamics. In the present case study, usual structural characteristics of the firm and performances appear to matter less than R&D, networking, organisational flatness and innovative oriented industrial relations. Environmental Policies and environmental voluntary auditing schemes exert some relevant direct and indirect effects on innovation, although evidence is mixed and further research is particularly needed. Although this new empirical evidence is focussing on a specific industrial territory, results concern a large set of hypothesis on potential driving forces of innovation. We thus provide food for discussion on firm environmental innovation strategies, and research suggestions for further empirical work.