Climate policy and customer demand are spurring growth for small and medium-sized companies to supply green materials to their corporate clients. The fight against global warming has become big business. Companies ranging from German utility E.ON to global financial-services giant HSBC have launched "green" products to meet regulatory requirements and tap into growing concern among consumers over climate change. The big guys aren't the only players, though.

The move by multinationals to boost their enviro-credentials is opening up opportunities for small and medium-sized enterprises (SMEs)—companies with less than 250 employees—to supply green products, services, and know-how to corporate clients.  

Corporate Purchasing Goes Green

"The changes in climate policy are opening up all sorts of new markets for small businesses," says Robin Smale, director of London-based consultancy Vivid Economics. Smale estimates that in Britain alone, SMEs will rack up $8 billion in annual revenues by 2010 selling a wide variety of products such as energy-efficient industrial components and cutting-edge materials, as well as eco-friendly consumer products.

Pressure from large companies is partly responsible. Looking for ways to reduce their carbon footprints, corporations are leaning on vendors to deliver greener solutions. "Many large brands are starting to really question their suppliers," says Harry Morrison, senior strategy manager at the London-based Carbon Trust, a government-backed research and advisory group. "Small firms willing to take the climate-change issue on board are starting to move quicker and quicker."

One factor boosting growth, is that green awareness has altered purchasing criteria. "The dynamics have definitely changed, before, people
were only interested in [the product's] cost. Now energy efficiency is as important; it's a must-have."

Britain's Zero-Carbon Construction Code

Another big opportunity for small firms is in construction. Under government plans, all new British homes and offices built after 2016 will have to be "zero carbon," which means they won't produce any net carbon emissions. To meet these stiff regulatory demands, large developers such as Barratt Homes (BDEV.L) and Persimmon (PSN.L) already are turning to their suppliers in search of new ways to cut greenhouse gases.
That's creating openings for firms

A Recession Could Slow Progress

The only cloud on the horizon is the economic downturn, which could slow the movement to greener business. "The recession could possibly dull interest in climate change," says Nigel Howorth, a partner in the climate-change practice at law firm Clifford Chance. "Nice-to-haves are the first to go when times are tough." That, in turn, could hurt SMEs plying environmentalism to expand their businesses.

But even if belts are tightened, the combination of popular pressure and stiffer regulations spells opportunity for companies supplying ecological products. Indeed, Vivid Economics figures business will earmark almost a trillion dollars over the next five years for carbon-reduction initiatives. Consciousness of the issue remains highest among large companies in the public eye: Nearly three-quarters of the firms listed in the Financial Times Stock Exchange 100 (FTSE100) index say they already have plans in place to reduce their carbon footprints, according to figures from the Carbon Trust.

In the broader economy, projects are far less developed. Just under one-third of all companies in Britain say they're working to reduce their carbon footprints. But among those who sell to larger companies, awareness is growing fast. After all, their customers are demanding it.

Sourced: By Mark Scott - a reporter in BusinessWeek's London bureau .