Do 'green' products really help the planet?

Eco-themed products are all the rage, but are they good value, asks James Daley
Saturday, 12 July 2008

Balancing your day-to-day needs with your responsibility to look after the environment is a challenge that most of us find hard to pull off. Taking the train instead of the plane across Europe may be more ecologically responsible, but the additional time and cost often makes it unfeasible. Likewise, while you might like the idea of buying food that's not been imported from the other side of the world, the extra cost and hassle of tracking down locally grown produce may be too great to help you resist simply buying your groceries at your local supermarket.
Ultimately, while most people are willing to make bold statements about their love of the environment, few are willing to make the major lifestyle changes that are required to make a real difference.
Such ethical apathy has helped to create a whole industry built around making it as easy as possible for consumers to soothe their aching eco-consciences – and in recent years, the financial services sector has been quick to jump on the bandwagon.
It's now possible to take out green insurance, green mortgages, green credit cards, green investments... The list goes on. Most work by promising to give a cut of your premium or interest to an environmental charity, or to buy carbon offsets. However, this is often reflected in the cost – with many green products failing to compete with the cheapest on the market.
David Kuo, head of personal finance at fool.co.uk, says: "In general, finding good quality financial products is hard enough already, without tying your hands behind your back by saying you want something that's green as well as good value."
Kuo points out that if you can save money by going for a non-green product, there's nothing to stop you putting your savings towards good causes."If you can save money [by opting for a non-green product], you're free to decide what you want to do with those savings," he says.
The green financial services market, however, is not all about gimmickry. Organisations such as the Ecology Building Society play an active role in helping finance green projects around the UK. "Our building society was set up in 1981," says chief executive Paul Ellis, "long before the current wave of interest in all things green."
The Ecology mainly loans money to homeowners who want to make their property more environmentally friendly, or to sustainable housing projects, often providing finance to projects which might otherwise struggle to raise the money they need. The building society raises the money to lend through its range of savings accounts.
While Ellis admits that the society's savings rates are some way below the market's best, he has a good counter-argument to the cynics' suggestion that savers should go for the best possible rate, and then reinvest the additional interest. "It's worth thinking about how the interest rate on your account is generated," he says. "If it's generated by lending to projects that are harmful to the environment, then it may be worth thinking twice."
So which green financial products are really worth the money?
Mortgages
When it comes to the ethical mortgage market, there are more than a few different shades of green. Giraffe, for example, a specialist mortgage lender set up by the Bank of Ireland two years ago, offers a carbon-offset mortgage which, as the name suggests, promises to offset the carbon emissions from your home during the first three years of your mortgage.
While this sounds attractive, you may change your mind once you've seen the rate. For a three-year fixed-rate deal, Giraffe will charge you 7.99 per cent – more than 1.6 percentage points above the market leading rate offered by Nationwide. Furthermore, Giraffe goes about its carbon offsetting by buying up carbon credits, which some environmental campaigners believe to be of little help in the grand scheme of things.
Although Giraffe rightly says that by buying up carbon credits, it stops other polluting companies being able to buy them, there have been many reports of abuse in the carbon credits market – with many of the worst polluters still being given large handouts of the credits, so that they never need to buy them in the open market.
This couldn't be further from the concept behind the Ecology Building Society, however, where you'll only be eligible for a mortgage if you're willing to invest money in making your home energy efficient – or if you're already living in an eco-friendly property. The Ecology has a competitive standard variable rate of 6.45 per cent, but customers who meet certain energy efficiency benchmarks can receive discounts of up to 1.25 per cent – making their mortgages cheaper than anything else available in the open market at the moment.
Next best, in terms of its eco-credentials, is probably the Co-operative bank, which gives money to the environmental charity Climate Care each year for every mortgage on its books. Last year, it donated close to £300,000 – and has helped fund environmental education projects in Madagascar, wind turbines in India as well as conservation projects in Uganda. Although the sums of money aren't huge, Co-op has built environmentalism into its whole corporate ethos, which is becoming an increasingly strong draw for the eco-minded.
Norwich & Peterborough promises to plant 40 trees for each customer that takes out a Green mortgage with it – and its four-year discount rate of 6.35 per cent is not uncompetitive. And Hanley Building Society donates £200 to Climate Care for every green mortgage customer. Again, not a bad interest rate, but, like N&P, the one-off donation is not much more than a token.
"There is a premium to pay for going green and I am not convinced whether it is one worth paying," says Melanie Bien, director at independent mortgage broker Savills Private Finance. "It might be better choosing the best standard residential mortgage and then using any savings made – compared with opting for a green mortgage – to make a donation to an environmental charity of your choice."
Credit cards
There are a number of "green" credit cards on the market, which either make donations to charities for every pound you spend, or who hand a share of their profits out to worthy environmental causes. Barclaycard's Breathe, for example donates half of its profits to tackling climate change.
Furthermore, says David Black, the head of banking at financial consultants Defaqto, it doesn't offer bad value either. "It offers 0 per cent on balance transfers for 12 months, with a 2.5 per cent transaction fee, which is quite competitive," he says. The regular APR is a middle of the road 14.9 per cent, but this reduces to just 5.9 per cent for purchases of public transport tickets (except, somewhat curiously, in London).
Alternatively, opt for a card which donates directly to your favourite environmental charity, such as the Greenpeace Visa. This will donate £15 to the charity when you open your account, plus a further 25p for every £100 you spend. Like most charity credit cards, however, the regular APR of 18.9 per cent is high. Wildlife charity WWF offers a similar card, with a lower APR, and 0 per cent on balance transfers for 12 months.
The Co-operative bank offers perhaps the most competitive green credit card. Its "Think" card has an APR of just 12.9 per cent, and also gives 25p of every £100 spent to an environmental charity – in this case, Cool Earth. Plus, half an acre of Brazilian rainforest will be purchased and protected in your name when you open the account.
Black maintains, however, that for most customers, it makes sense to find the card that fits best with your spending habits and current financial situation. If you need a card with a long interest-free period for purchases, or a low APR, you may not be suited to any of the charity credit cards on the market. But there's no reason not to set up a direct debit to a charity on the same day that you take out your new card. To find the best charity cards, visit www.moneyfacts.co.uk.
Banking/Savings
The banking end of the green finance market has so far been the most gimmicky. Many banks will talk about "green banking" in terms of their efforts to wean their customers off paper statements. But this is a serious cost-saving for them – most of which will probably not end up in the pockets of environmental charities. HSBC is currently offering its customers £5 if they move to "green banking", but again, this is hardly a reflection of the saving it stands to make.
When it comes to green savings, Ecology is still one of the leaders. Its cash ISA pays a relatively competitive rate of 5.1 per cent if customers don't make more than one withdrawal during the year. More than one withdrawal and the rate drops to 4.1 per cent.
Although savers could do better, they can at least sleep easy knowing that their money is being used to finance good causes.
You'll also find a growing number of green investment funds on the market – some of which are much greener than others. Make sure you read the literature carefully, and understand exactly how they claim to justify their green status. You can search for ethical funds at www.trustnet.com.
Useful links: www.ecology.co.uk, www.co-operativebank.co.uk, www.greeninsurancecompany.co.uk, www.morethan.co.uk, www.climatesure.co.uk, www.eta.co.uk, www.moneyfacts.co.uk, www.trustnet.com
Insurance and the price of carbon offsetting
The green fad has been slowly creeping into all types of insurance – but for now, there are still only a relatively small number of products available.
Once again, it was the Co-op which led the way in this market, launching a motor insurance policy two years ago, which promises to offset 20 per cent of all customers' car emissions. Today, it offers this to all customers who sign up with it, and also makes other environmental commitments, such as using mechanics who promise to always try and repair a vehicle before scrapping it.
A newer entrant to the market, The Green Insurance Company, goes one step further, offering to offset 100 per cent of your emissions over the year.
Another slightly different approach in the motor market is More Than's Green Wheels policy, which allows customers to put a device in their car to analyse their driving, and provide them with pointers on how they could reduce their carbon emissions. Drivers who accelerate too quickly or drive too fast tend to be the worse polluters – so by examining your behaviour, you could help to cut your emissions, and your petrol bill. The service is free for all More Than car insurance customers.
In the travel market, climatesure, which is backed by AXA, promises to pay for the carbon offsets of any trip you make. While in the home market, the Environmental Transport Association pledges to offset the emissions caused by heating and electricity in the home for all policy-holders.
With all these products, the one thing to watch out for is the price. Climatesure's insurance, for example, is more expensive than buying regular travel insurance – but it can be competitive when comparing the combined cost of separate insurance and carbon offsets. It's always worth comparing green products with plain vanilla insurance, and working out how much you could save.