When It Pays to Go Green

A brief guide to sizing up socially responsible spending

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“When is it less expensive to go green?” —@riimzonline on Twitter

If you’ve been thinking about going green, join the club. It typically costs a bit more to shop organic or buy environmentally friendly products, but millions of Americans are doing so. Sales of green household products by the lighting and consumer-products company Philips rose 28% last year, for instance. Procter & Gamble exceeded its goal of $50 billion in sales of sustainable cleaners and other items. Automakers of all stripes now offer hybrid and electric cars. Even Wall Street is rewarding socially responsible companies with a flood of capital. In fact, so many companies are labeling products eco-friendly, it can be hard to cut through the hype. Here’s a primer:

Your Car: In general, the lighter the vehicle, the more eco-friendly it is. (Think sedan vs. pickup truck.) Hybrids using a combination of gas and electricity trump traditional gas vehicles. Meanwhile, some cars have more recyclable parts; others take better care of what they spew from the tailpipe. It all matters.

What about fully electric vehicles like the Nissan Leaf and Tesla Model S? They aren’t necessarily greener than hybrids, says Therese Langer, transportation-program director at the American Council for an Energy-Efficient Economy. Generally, she says, electric cars are a good choice in the Northeast and West, where more energy is generated from relatively clean natural gas, nuclear plants and hydropower. In the Midwest and Southeast, the use of coal-powered electricity to recharge car batteries offsets the green benefits of electric cars.

Bottom line, the council rates the Toyota Prius, Honda Civic and Volkswagen Jetta hybrids best overall. Many hybrids are priced at a 15% premium over comparable vehicles. But counting the total cost, with fuel and other savings, narrows the premium to 3% or less. And if gas prices rise, that percentage goes down.

Your Home: Home efficiency is mostly a matter of insulation, which cuts down on energy consumption. Sealing and insulating the attic might cost up to $4,000, but through energy savings you’ll get paid back in five to 10 years.

Lighting is a bigger deal than you might imagine. An incandescent bulb burns hot, pushing up cooling bills in the summer, and each bulb consumes $10 of electricity annually, says Asa Foss, director of technical development at the U.S. Green Building Council. Switch to LED bulbs with an Energy Star label. They may retail for $20 to $30, but the cost of turning them on is negligible, and many utility companies offer a rebate. LED bulbs are just 9% of the market, but they are headed to 64% by 2020, the consultancy McKinsey estimates. Search your utility’s website or go to dsireusa.org for a complete listing of home-energy incentives.

You can also cut energy consumption with low-flow faucets and showerheads. Today’s versions work a lot better than earlier ones and will pay for themselves within a year. Likewise, today’s solar panels aren’t so problematic. They may cost $20,000, but they pay for themselves in seven to 10 years. Solar panels also add to a home’s resale value.

Your Portfolio: You don’t have to give up returns to invest with a conscience. Green mutual funds returned an average of 21.6% in the past 12 months—in the top half of the broader fund universe, according to research firm Morningstar.

“We have found that good environmental management reflects good management, period,” says Steve Schueth, president of First Affirmative Financial Network, which manages $820 million in assets in a socially responsible way. It’s a growing trend: $1 of every $9 under professional management is in a so-called socially responsible investing (SRI) fund. Such assets grew 22% from 2010 to 2012, according to the latest data available, and will likely hit $4 trillion this year.

The most popular green funds focus on clean energy, clean water and nutritious food. But you can slice and dice to your heart’s content. Some SRI funds invest based on religious beliefs or human-rights or corporate-governance issues. Others avoid things like alcohol, tobacco and gambling stocks. But if you just want a simple, well-rounded approach, consider funds like Green Century Equity, Shelton Green Alpha and Pax World Global Environmental Markets. You can still do well by doing good.