ENVIRONMENTAL problems such as climate change are "rewriting the rules for business" and sparking economic investment to the tune of billions of pounds, a report said.

According to Worldwatch Institute's State of the World 2008 study, money is pouring into areas such as renewable energy, green technology and carbon markets as businesses recognise the opportunities they present.

But problems caused by industrial development - such as climate change and destruction of ecosystems - are threatening global economic stability, the report from the Washington-based environmental research organisation warned.

And with the damage from climate change set to cost as much as 8 per cent of worldwide economic output by the end of the century, the report's authors called on governments to steer investment away from fossil fuels towards more environmentally-sustainable industries.

The institute also urged a reduction in subsidies and more environmental taxes to make the price of goods reflect their ecological cost.

According to the report, some £26 billion was invested in renewable energy in 2006, up 33 per cent on the previous year.

The figure for 2007 is estimated to be even higher at around £33 billion.

And carbon trading was worth around £15 billion in 2006 -almost three times the amount traded in 2005, the report found.

So-called "cleantech" - such as technology which improves energy efficiency or reduces pollution - was the third largest recipient of venture capital, behind the internet and biotechnology.

In China, cleantech investments jumped 147 per cent between 2005 and 2006, accounting for 19 per cent of all venture capital investments that year, the report published in the UK by Earthscan said.

There are now 575 environmental and energy hedge funds in existence, while some of the world's biggest companies are calling for US regulation on greenhouse gas emissions and cutting their own output - saving billions in the process.

For example, chemical giant DuPont reduced its emissions to 72 per cent below 1991 levels and saved £1.5 billion, the report said.