If you're after a company car, then you're also after low CO2 emissions. Come to think of it, even if your car is privately owned, then its green credentials are also pretty important these days. Which is why if you're running one of those prestigious but thirsty compact executive saloons, you might be thinking of downsizing to something a little smaller.

Before you do, it might be worth checking out the car we're looking at here, Volvo's S40 1.6D DRIVe. You probably haven't heard of Volvo's 'DRIVe' range but you may be familiar with BlueMotion versions of popular Volkswagens or BMW's EfficientDynamics programme. Even if you're not, it isn't a difficult concept to grasp. These are cars that feature a clever package of changes to improve the CO2 emissions and enhance their fuel economy. In other words, you don't need to buy a very small car to be very green.

So let's look more closely at this S40 1.6D DRIVe model as an example. Its CO2 figure of 118g/km easily beats the 123g/km of BMW's 318d ES and the 122g/km of Volkswagen's Jetta BlueMotion. The fuel economy's very impressive too, with this car achieving 62.8mpg on the combined cycle and getting on for 70mpg at motorway speeds. It's a decent improvement over the standard model - which it needs to be to justify the couple of hundred pounds premium that the DRIVe package will cost you.

So how have Volvo done it? Well apparently, the Swedish engineers focused on four areas. The first was reduced air resistance. To this end, the chassis height was reduced by approximately 10mm to help reduce drag, then the radiator grille was covered and behind it added a wind-deflecting panel that provides better aerodynamics inside the engine compartment.

Wind deflectors in front of the front wheels steer the airflow and there are aerodynamically optimised wheels with a unique 'Libra' rim. The diamond cut finish adds to the unique design and the large unobstructed area that goes all the way out to the tyre makes the rim look considerable larger than it actually is. The total drag reduction of 10-15% is due to the design of the Libra rim. Finally, the car borrows the front and rear spoilers from the performance T5 model.

"You don't need to buy a very small car to be very green.."

Next up, the boffins sought to lower the car's rolling resistance, adopting a set of new generation Michelin tyres designed for that purpose. Higher gear ratios would also help, they decided, so the gearbox features altered ratios for third, fourth and fifth gears. The longer gear ratios contribute to a 1.5% reduction in fuel consumption without, say Volvo, affecting the drivability of the car.

Finally, a more efficient driveline was targeted, which meant optimisation of engine cooling, engine management and power steering systems. A different transmission oil which creates much lower friction is used in the gearbox and a gearchange indicator in the information display tells the driver the ideal time to change gears.

None of this stuff does much on its own but collectively, it all adds up to a lot. Changing the transmission oil, for example, offers up a 0.75% improvement in fuel consumption. Tyres with low rolling resistance save another 2% and so on. With lower carbon dioxide emissions, the DRIVe models salve Volvo's conscience by reducing its net contribution to global warming, although the company reckons it was already doing its bit by fitting all its diesel models with a maintenance-free particle filter that traps about 95 percent of all soot particles. Plus of course, if the 1.6D diesel option doesn't appeal, you could also go green and cut costs by ordering your S40 in Flexifuel form, where it can use part petrol and part bioethanol.

Otherwise of course, it's the usual S40 recipe, this car on offer as a saloon or, in V50 form (where the 'DRIVe' package is also available) as an estate. The 1.6-litre diesel chosen for these modifications was already a very efficient engine, constructed of aluminium and featuring common rail technology and a variable geometry turbocharger. It's only a fraction slower to 60mph than the comparable 1.6-litre petrol-engined model, dispatching the increment in just 11.8 seconds but its 240Nm torque figure puts even the 2.4-litre petrol S40 in the shade. It may be light but this diesel unit packs a hefty wallop.

Despite this particular S40 being effectively an entry level model, Volvo haven't skimped when it comes to safety and they claim that the S40 is as good to crash in as the flagship S80 saloon. Making a small car as safe as a big 'un takes some doing and it's only when you look at some of the finer points of how Volvo have achieved this that you realise quite what this commitment means. It involves casting the turbo housing as one with the exhaust manifold so that the engine is more compact when mounted transversely, giving more space for crush zones. It means developing the Intelligent Driver Information System which monitors how hard you're using the throttle, brakes and steering and will hold incoming telephone calls or satellite navigation instructions until things have calmed down so as not to distract you in the middle of a manoeuvre. It means using four different grades of high tensile steel for crash protection.

It's all very sensible - much like the DRIVe package. Thinking of downsizing to a cheaper car to lower your running costs? At this rate, you may not have to.