Increasing pressure on industry from a range of interest groups has placed environmental concerns at the centre of social and political agendas. This is reflected in policies that aim to effect the ‘greening’ of industry. The focus has been on the environmental impacts of larger corporations. Small and medium sized enterprises (SMEs) have received relatively little attention, although their economic and environmental significance cannot be ignored. This research investigated a group of environmentally motivated SMEs to identify policy measures that would promote ‘green’ product and service innovation. The project draws on data from 14 case study interviews to distinguish the key factors that led to the marketing of their 'green' products and services. Interviews were also conducted with policy makers and SME support agencies in the UK and the Netherlands. This enabled a comparison of schemes available for the promotion and further development of ecologically designed products within this sector. The ‘Eco-wheel’, created as a means of introducing Dutch SMEs to environmental design issues, was adapted to identify the environmental profiles of the ‘green’ products in this study. This technique proved inappropriate for the analysis of service oriented^ firms and an alternative systems-based model was developed. The general business environmental profiles revealed that the enterprises could be categorised ‘light’ or ‘dark’ green. The analysis indicated these firms were not the stereotypical reactive SME portrayed in the literature. Legislation and industrial standards, while instrumental in improving the environmental performance of the majority of SMEs are inappropriate as drivers for innovation in the ‘green’ firms. This ‘green avant garde’ typically sought commercial advantage through their commitment to environmental and business excellence within their niche markets. The research suggests that to further stimulate these ‘green’ niche markets a radical policy framework is required. This would ensure: a) access to low-risk venture capital for Research and Development; b) the effective dissemination of reliable environmental information; c) financial rewards for consumers and producers of ‘green’ goods and services, delivered through tax incentives and subsidy programmes. These initiatives could contribute to effect technological and system level innovations that will ensure the transition to a more sustainable future
