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The financial services sector has undergone a revolution over the past 12 months. Started by the concerns over the liquidity of a number of American banking institutions and exacerbated this side of the Atlantic with the demise of Northern Rock, the UK financial sector has seen a period of uncertainty, with the R-word - recession - rearing its ugly head.

The price of oil has fluctuated greatly over recent months, hitting a high of more than $140 a barrel and house prices in the UK have begun to slide, while the price of household bills, mortgage rates and staple food items has risen. Inflation has reached 4.4 per cent, over twice the 2 per cent target set by Mervyn King, the governor of the Bank of England, and banking institutions across the globe have reported massive drops in profit in the first half of 2008, which have all contributed to falling confidence in the financial services sector.

However, despite the market uncertainties, consumer trends and the need to innovate have continued to drive the appeal of more niche sectors of the market, and one area that has seen a growth in consumer and investor attention is green and climate change opportunities. A recent survey showed that, despite the current economic conditions, almost 50 per cent of advisers were advising their clients to invest in green funds.

It is clear that in recent years mainstream consumers have become more ecologically aware and more committed to green causes. Whether this be buying fair-trade items or recycling, there has been a definite shift in consumer sentiment towards saving the planet. Of course, some of this has been dictated by governments across the globe, but it is evident more people are taking an active interest in green policy. For example, it is estimated consumers spent over £1.6bn worldwide on fair-trade goods in 2007 and this figure is expected to rise again in 2008, despite the market downturns.

Indeed, a recent survey indicated that despite the current economic conditions, 80 per cent of consumers did not plan to change their eco-friendly shopping habits and would continue to spend money on products and services they trusted and admired. Organisations have had to adapt business strategies to match the changing consumer and investor psyche.

Where once the deciding factor, when choosing an investment, would be potential for growth or income, for a growing number of investors green issues must now form part of a broader fund choice consideration. Of course, performance will remain one of the most, if not the most important factor, but other considerations are now likely to be taken into account, including the fund holdings commitment to the environment.

In line with this, green products and retailers have started to pop up more frequently on the high street, as well as in factories and other working environments. Over recent years a large number of institutions from gas and oil companies to car and steel manufacturers have made large strides in their efforts to improve their carbon footprint and commitment to the environment. Outukompu, an international stainless steel company, for example, recently confirmed its commitment to optimise energy used to improve efficiency and reduce its emissions to air, water and soil while also reducing its generation of waste. Its share price has reflected this, with a 10-year high of 34 against a low of 7.15.

Much of the environmental change undertaken by businesses has come as a result of consumer demand, but has also been determined by increased government intervention. The EU has set a target for its member states to reduce carbon emissions and to improve their commitment to renewable energy sources. In his first speech as prime minister, Gordon Brown confirmed that he wanted to see harmful emissions in the UK cut by a minimum of 60 per cent by 2050 and renewable energy resources improved. Planning is also in advanced stages in the UK for 10 eco-towns, which will see the construction of between 5000-20,000 zero-carbon properties at each of the proposed locations.

With a consumer and political focus on "going green", what moves have companies taken? And how have these moves impacted on fund managers holding selections?

Porsche, for example, has over recent years updated its commitment to the environment and stated that by 2012 average carbon dioxide emissions of its vehicles will have fallen by a fifth compared with 1995. They expect this to lead to more customers, and as a result fund managers are taking notice of what the organisation is doing. The Porsche approach has also meant that similar manufacturers such as BMW have had to adapt new strategies so as not to be left behind by the market innovators. It is the responsibility of chief executives to ensure their business is the most compelling for investors and nothing compels them to want to make changes to their business more than seeing their rivals share price rise, or their own fall.

BMW has introduced a marketing campaign highlighting its green pledges, including lowering fleet fuel consumption and utilising "intelligent lightweight construction" to optimise the weight of its vehicles and following news of its green commitment its share price hit 47.63.

Although these fundamental changes to the structure of the business are likely to place a strain on the balance sheet in the short term, over the long term costs should be reduced as companies become more efficient as they produce less waste. From a purely business perspective switching to a green approach can in the medium to long term reduce business costs and also impact positively on consumer sentiment, factors both likely to sway investor attention towards the fund.

The "green sector" now includes a multitude of funds from green and eco-friendly to climate-change options. While some funds will only invest in the companies that provide solutions to the environmental problems, such as having holdings in wind turbine and solar energy providers, other investment funds will take a more considered approach, looking at companies that have made strides to improve their eco-commitment. And this means not ruling out any sector. Oil companies, seen to be the largest polluters also provide the greatest opportunity for change and some funds will consider these, which should appeal to a section of investors looking for reduced volatility growth as well as a climate change commitment.

Climate change and green funds are relatively new, but can add diversity to an investors portfolio. If investors can retain a medium to long-term approach to their investment strategy they should have ample opportunity to make the most of green commitments that a whole host of businesses, from BMW to Shell, are making.

Also, as consumer and industry sentiment grows it is hoped that the sector will be able to take a lead in initiating new ideas such as greater implementation of a cap and trade scheme. The scheme currently operates within the heavy industry and power generation sectors and within these, firms are given a limit on their carbon emissions. If they exceed this they then have to apply for "carbon credit" which impacts on their cost base. It is hoped this move will become more widely accepted within other sectors, and force external costs, currently borne by the consumer, back into the hands of the business.

With recent research suggesting that green funds were being considered more readily by IFAs and with more businesses an governments committing to green pledges, it is clear that these funds have a captive audience and a diverse wealth of market opportunities in a range of sectors, from gas, to cars, to steel and oil, which could well prove to be a useful addition to any clients balanced portfolio.

Vince O'Donovan is head of intermediary sales at Virgin Money