The Geneva Motor Show is often used as a springboard for the launch of innovative concept cars, some of which make it into production and some of which are soon forgotten. But this year, the world's top car manufacturers aren't simply showcasing new marques—many are experimenting with an entirely new strategy. Whether it's a general movement away from heavier gas-guzzlers towards smaller, more fuel-efficient cars, or the more specific inclusion of hybrid engines that produce less CO2 emissions, cars manufacturers are making a concerted effort to go green.

Both Ford and General Motors have in the past been criticised for their lack of environmental credentials. The Geneva show will provide an opportunity to redress the balance. Ford's new C-MAX, for example, will come with options for gas, diesel, "flexifuel" and, in some countries, the ability to run on liquefied petroleum gas, or compressed natural gas. Yesterday [March 6th], General Motors chairman and CEO Rick Wagoner pledged to continue his company's quest for a "cleaner" diesel for GM marques and a more efficient hydrogen fuel-cell powered engine.

German manufacturers BMW and Mercedes are also banking on greener strategies, but some analysts believe too much ground has been lost to the Japanese car firms, Toyota and Honda, who instead of treating the search for greener alternatives as a drain on R&D, have from the outset built environmental goals into company strategy, seeing it as an opportunity to differentiate their brands. If you ask Will Oulton, director of responsible investment at FTSE4Good, the difference in strategy is reflected in the share price. "If you look at the performance in terms of share price between companies like Toyota and Honda, and the US companies Ford and General Motors, then the Japanese have done well and the US not so well," he says. "It's a good example of how the pressure to change is affecting competing global companies of the same type."

FTSE4Good is in its sixth year. Its job is to provide a stockmarket index of "ethical" businesses for "socially conscious" investors and to produce a set of guidelines that show directors how to make the cut. Oulton says regulation, as well as consumer pressure, has been responsible for the Japanese carmakers' lead over their western rivals. "In China, which is a huge market for the industry, they have quite restrictive environmental requirements, which the Japanese models, with their cleaner engine technology can meet, and which the US models can't," he says.

Regulation alone, though, isn't enough to drive the level of change needed. Says Oulton: "There needs to be some level of regulation to set a level playing field, but innovation has driven the success of some of these companies," he says, as well as a clear message from investors. "I think that any company would be foolish not to look at how they are impacting on the environment-and that question is being asked by investors. Look at the Carbon Disclosure Project. There's a huge number of investors supporting that and getting companies to broaden their environmental scope."

Increased investor support is also reflected in the amount of opportunities available for green investors. A January study by sustainable investment firm EIRIS discovered almost 90 ethical retail funds available in the UK. And the returns have been favourable, too. According to data collected by FTSE4Good, its own index has largely outperformed the FTSE global 100 index in practically every month since September 2002. "The question for businesses," says Oulton, "is how you can deal with the challenge of meeting the needs of your shareholders and of your target customer."

He cites Stuart Rose, chief executive of M&S, as a trailblazer: "His approach is that there is a benefit to having a range of products that are environmentally conscious, while also addressing some other social challenges such as obesity, as well as providing increasing growth for shareholders. Increasingly, companies are becoming more and more aligned rather than being polarised at opposite ends of the scale."

FTSE4Good tends to make the headlines only when it's forced to remove a company from its index. Recent evictees include Kesa, parent company of Comet, and Hilton Hotels. But a more important part of Oulton's role is to raise the environmental bar, identifying companies "that will find the costs of operating in a modern, constrained world more challenging", and to suggest ways of raising social accountability. As well as the automotive sector, Oulton and his team have identified a number of different industries that inflict unsustainable damage on the environment. Recorded as "high impact" sectors are mining, steel production, air travel, coal and oil exploration, while defence, construction, farming, brewing and pharmaceuticals are classed as "medium impact" sectors.

FTSE4Good recommends that at the very least, companies in these sectors publish long-term plans for reducing their carbon footprint. This is especially significant given the fact that six out of the 10 largest companies in the world have no published plan to reduce their carbon emissions. But, says Oulton, whether galvanised by investor demand or regulatory pressure, social responsibility makes business sense. "I don't think investors ask, 'what's the social return?' Investors want companies that are sustainable in the long term and that can grow and adapt to change in the market they're in. The smart directors," he says, "are realising that there has been a shift in public perception."

That shift needn't be disruptive. "Some companies will find it more expensive to change, such as in the automotive sector, but there's no reason why companies in the service sector cannot do something as simple as reducing their energy costs," says Oulton. "Because the inflation of energy bills at the moment means it makes business sense, but the implications for the environment are quite dramatic."