There are signs that investors are starting to take the climate change issue seriously, with the publication of a report from Citigroup's equity research team on the impact of CO2 emissions on vehicle manufacturers' financial performance.

The report comes ahead of a European Commission decision expected later this month (24 January) on future CO2 requirements for the industry.

Citigroup believes that the short-term (three year horizon) impact of efforts to reduce CO2 emissions is likely to be found in vehicle manufacturers' product mix, with cars at the top end of the scale likely to lose out to small cars. As a result Citigroup has downgraded its outlook for BMW to hold/medium risk, from buy/medium risk.

BMW has the highest fleet average carbon emissions amongst major European automakers. On the other hand, Citigroup has raised PSA Peugeot Citroen to buy/high risk from hold/high risk, partly because it is expected to become an 'environmental winner', as environmental concerns move up buyers' priority lists.

The European Commission has threatened vehicle makers with mandatory CO2 emissions limits after they failed to meet a voluntary target of an average of 140g CO2/km by 2008 and 120g CO2/km by 2012. There is also growing interest in putting the industry into an emissions trading scheme.

While the European Commission is expected to come down hard on the automotive industry, efforts are also being made to help companies embrace cleaner technology to gain market advantage.

"We have to see climate change as an opportunity agenda, not as a burden to be shouldered," said Peter Mandelson, EU Commissioner for Trade, at the end of last year.