Ethical money: 10 ways to greener spending

By Miles Brignall, Rupert Jones and Simon Birch

Every time we put our hands in our pockets we're making a choice. Guardian Money looks at how to be environment-savvy without it costing you the earth

Green for go: energy saving lightbulbs can help reduce energy use. Photograph: Getty CreativeNational Ethical Investment Week, which kicks off tomorrow, aims to ensure everyone knows their options when it comes to their financial decisions. To celebrate its launch, Guardian Money has looked at the steps you can take – some very simple – to "ethicalise" your money and your spending decisions.

1. Savings

The good news for ethically minded savers is that there are a number of interesting options available. However, not all the accounts on offer pay particularly good rates of interest.
Bristol-based ethical bank Triodos has a range of savings accounts including an easy-access account called Online Saver Plus that pays 2% gross, which includes a fixed 1% introductory bonus lasting for 12 months, and two, three and five-year fixed-rate savings bonds paying 2.75%, 3.25% and 3.75% respectively.
Triodos only lends to, and invests in, organisations that benefit people and the environment, and now has thousands of savers, including award-winning Scottish folk singer Karine Polwart. The singer, who kicks off her latest UK tour next week, reportedly liked the fact that as well as financing organic farms and renewable energy ventures, Triodos also funds a number of arts and cultural projects ranging from community cinemas and artists' co-operatives to live music venues. However, Triodos does not offer a current account for UK personal customers (it does provide banking services to businesses and charities) or mortgages.
Many people won't have heard of it, but Charity Bank is the only regulated bank in the UK that is also a charity. It only lends to charities and social enterprises, and offers accounts that anyone can take out, including a cash Isa that pays 2.5%. Minimum deposit is £250 and withdrawals are subject to 33 days' notice. It is a member of the Financial Services Compensation Scheme.
Meanwhile, Ecology building society's accounts include an instant access cash Isa paying 2%, where the minimum investment is £25.

2. Shopping

Switching to a more ethical product choice doesn't have to mean paying over the odds. So says the Ethical Company Organisation, which has just published the latest edition of its consumer handbook The Good Shopping Guide. This gives hundreds of well-known brands, from pet food to paint, an ethical score out of 100 based on how they were rated on areas including the environment and workers' rights .
The highest scoring supermarket was the Co-op, with Asda (part of Walmart) propping up the bottom. But what about, say, coffee shops? Caffè Nero and Coffee Republic scored 72 out of 100 and 68 respectively, putting them ahead of Pret A Manger (64) and Starbucks (52). Starbucks, for example, received the lowest score in two categories (genetic modification, and the fact that a boycott of it has been called and not yet dropped).
When it came to fashion, the two highest scoring brands were Cornwall-based organic cotton clothing company Seasalt and fairtrade label People Tree. The latter attracted headlines after Emma Watson, best known for her role as Hermione Granger in the Harry Potter films, launched several clothing collections for the company. New Look and Zara also achieved high scores. There are plenty of other books and websites that rank brands in this way – for example, Ethical Consumer's website features free buyers' guides covering everything from brandy (organic producers Brard Blanchard and Guy Pinard come top, since you ask) to toilet paper.

3. Green energy

One of the quickest and easiest way to green your household is to switch to a renewable electricity provider. There are now a host of companies offering to supply your home's electricity from 100% renewable sources. Switching to a green supplier takes around 10 minutes and for most households it won't cost much more than they are already paying.
Before you jump in and switch to the first available tariff promising 100% renewable electricity, be aware some green tariffs deliver more than others.
The big six established power firms offer green tariffs; however, do you want to sign up to a company that operates coal-fired power stations alongside a single green deal?
Fortunately, there is a switching website devoted to those looking for a green electricity tariff that has done all the hard work for you. Greenhelpline.com lists all the deals and shows how each company's overall power is sourced and how it compares to the UK average. You need to key in your postcode and how much you currently spend annually on electricity. You can sort the list according to the 'greenest' green deals, or on price.
For those looking for the greenest option, two companies stand out. Good Energy is the only UK supplier that sources all of its electricity from renewables, and has done for more than a decade.
Ecotricity is the other long-established supplier. Its green credentials are equally strong but for a different reason. Unlike Good Energy, which buys in its electricity, Ecotricity builds its own generating capacity around the country -, mostly through wind turbines. It is one of the leading proponents of the renewables sector and is always looking to increase capacity.
Ecotricity offers two tariffs: a 100% renewables deal, and a second that is a bit cheaper but includes some power sourced from traditional supplies. It is also working on coming up with the first green gas supply, made from household waste.
Other companies to consider include Ovo Energy, which also has a green tariff that supplies 100% renewable electricity (at a slight price premium) alongside its standard tariff which provides 15% of electricity from green sources. The UK average is around 8%. Ovo offers one-year contracts at fixed prices. LoCO2 Energy is another small company that is competing on price and a 100% offering.
If you want a not-for-profit supplier, consider Ebico, the UK's only social enterprise supplier of gas and electricity. It was founded to offer poorer consumers using pre-paid meters a better deal.
Overall, most switchers won't pay much more than they would if they were on their electricity supplier's standard tariff – but around 10%-15% more than on its cheapest online deal. Most households will save an average of 1.7 tonnes of CO₂ a year by switching to a 100% renewables tariff.
Alongside a switch of supplier, do all you can to reduce your energy consumption. Low energy lightbulbs/appliances can make a big difference. Consider a wood-burning stove for heat, and running it on waste wood.

4. Mortgages

Homeowners and buyers looking for an "environmentally friendly" mortgage will soon discover that the choice is limited. Ecology building society lends on properties that have a clear environmental benefit.
Typical customers might include those renovating a derelict or run-down property (which in essence is recycling the building), borrowers keen to install energy-saving measures or renewable technologies, someone building a new property using sustainable materials and people looking for mortgages for back-to-back terraces, which are by design highly energy efficient.
"We are particularly interested to see derelict and dilapidated property brought back into use. So even if you do not consider your current lifestyle to be particularly green, your project might well be of interest to us and one we can support," the West Yorkshire-based society says.
The Co-op Bank has for some time had a policy where, for every new mortgage taken out, it makes an annual contribution to Climate Care, an organisation dedicated to combating global warming – but this arrangement ceases at the end of this month. However, it still offers an "energy efficient advance" which is a product available to existing mortgage customers who wish to borrow additional money to finance energy-efficient home improvements. The rate is 1.54% for two years (1.04% above the Bank base rate).
Norwich & Peterborough building society used to offer "green mortgages", but withdrew them a few weeks ago after its contract with a carbon-reduction company came to an end. It says this area will be reviewed following its imminent merger with Yorkshire building society.
But are homebuyers really bothered about whether or not their mortgage is environmentally friendly? It is understood Norwich & Peterborough has sold very few green mortgages since 2007, and takes the view that it is not dropping something for which there was a demand.

5. Current accounts

When it comes to current accounts, the main green name on the high street is the Co-operative Bank, which – along with its online banking arm, Smile – operates a strict ethical policy based on the concerns of its customers. Launched in 1992, the bank's ethical stance prohibits it from lending money to companies involved in a range of dodgy activities, ranging from the arms trade and animal testing to genetic engineering and global warming.
This, arguably, makes it the obvious choice for people who want to run ethical current accounts. "Since 1992, the Co-operative Bank and Smile have withheld over £1bn of their customers' money from businesses whose activities conflict with the policy," it says.
The other option to consider for current accounts is a building society. They are widely considered to be ethical – albeit by default – because profits are typically ploughed back into the business for the good of borrowers and savers rather than shareholders. But, surprisingly perhaps, they are often overlooked by those looking to move their bank account.
Nationwide building society offers a full current account service and scored well in surveys from both Ethical Consumer, which describes itself as "the UK's leading alternative consumer organisation", and the website Your Ethical Money, which aims to provide independent information on green finance to mainstream consumers.

6. Lending money

Alternatively, how about lending a little money to someone in the developing world who is trying to lift themselves out of poverty by running their own business? In August, Guardian Money highlighted the microfinance website lendwithcare.org, backed by the Co-operative Group, which allows people to lend relatively small sums to people in countries such as Cambodia and Togo. You won't earn any interest, but the money you lend is paid back to you in instalments. The minimum you can lend is £15 and the site says the average repayment schedule is around 12 months.

7. Your company pension

Are you happy about where your workplace pension cash is being invested? Do you even know where it's being invested? If you are in a money purchase company scheme, your pension cash may well be in its "default" fund. This is where people's cash goes if they don't specify how they want it invested.
However, many schemes offer their members a choice of funds, and this will often include an ethical fund. For example, it might be one that tracks one of the "FTSE4Good" stock market indices. You can usually specify which investment mix you prefer. Depending on their circumstances, some people might decide to move a bit of their pot into the ethical fund and then see how they get on.

8. Investments

There are dozens of ethical unit and investment trusts to choose from, with most of them available as Isas.
Dark green funds avoid investing in companies involved in unethical activities such as the arms industry, animal testing and tobacco – a process known as negative screening.
Light green funds, meanwhile, take a positive screening approach, investing in companies that make a positive environmental contribution such as those involved with renewable energy, recycling and water management.
But do investors who go ethical end up paying for their principles? Often it's not a clear picture. In the year up to June 2011, ethical funds had outperformed non-ethical funds (14.91% compared with 13.65%) but since then the tables have turned. In the year to October, the average ethical fund has shown a loss of 5.56% compared with a loss of 3.41% for the average non-ethical fund, says financial data provider Moneyfacts.
An example of a dark green fund is the Ethical Equity Fund run by Kames Capital (the new name for Aegon Asset Management), which operates a strict negative screening policy avoiding all animal products and so gets a thumbs-up from vegans.
The fund has done well compared with others in the same sector, says Richard Eagling at Moneyfacts. First State Asia Pacific Sustainability is an example of a positive screened fund that has consistently delivered top-quartile performance.
For more information about ethical investments visit Your Ethical Money. Professional advice website unbiased.co.uk has a "find an independent financial adviser" search tool allowing people to look for a local adviser with expertise in ethical investment. IFAs specialising in this type of investment include Barchester Green Investment, the Ethical Investment Co-op, Ethical Investors and the Gaeia Partnership.

9. Greening your workplace

If you are in a position to do so, carry out an environmental audit of your office. Establishing how much energy, water and waste your office is responsible for lets you know what you need to target and enables you to track progress. Environmental charity Global Action Plan can help with this.
An energy-efficient office also saves money and carbon. The Carbon Trust website is packed with tips on how to cut energy bills. The trust can also work out your organisation's carbon footprint. Next month the trust launches an online tool designed to empower employees to make energy savings around their office.
Recycling office waste is a hot issue as some waste collection companies are charging businesses a fortune to collect their waste.
Check with the Community Recycling Network to see if there is a low-cost scheme nearby. London-based firms could also try the London Community Resource Network.
Ethical purchasing can also help reduce the environmental impact of your office. The Green Stationery Company supplies everything from recycled paper to ethically sourced wooden desks.
Office workers can help farmers in the developing world by switching to fairtrade tea and coffee. Cafédirect supplies catering packs of tea and coffee.
If you drive to work every day, cut the carbon cost of your commute and save money by joining a lift-sharing scheme such as National CarShare or liftshare.com.

10. Invest in community schemes

If you'd rather not get involved with financial institutions of any kind, why not invest your savings in a local community project?
In 2008, Money reported on a successful appeal for £300,000 by a community group in Settle, north Yorkshire. The money was used to build an electricity generating hydro scheme using an archimedean screw turbine.
The scheme has now been generating power for 20 months and has picked up a string of awards. Those behind it say they expect to pay the first dividend in year four or five, and in the last year they produced 40% more power than projected.
More interesting is the fact that it has gone on to spawn several other schemes. More than 300 groups have visited the site, and those behind the Settle project say they are now passing on the information they learned to those interested in following their lead. Such schemes tend to be set up as an "industrial and provident society" – run by members to redistribute net earnings into the local community.
The returns are not enormous by City standards, but that's not the point. There is a scheme in Stockport that is looking for funds – go to h2ope.co.uk
And it is not just power-generating projects that are looking for local investments. Everything from community pubs to post offices and even filling stations have been taken over and operated by local community funding. For more information go to co-operative.coop/enterprisehub