Virgin Money's climate change Isa gets Richard Branson in a pickle

Arms manufacturers, tobacco companies, mining giants and oil companies. These are not the kind of companies where you would expect an ethically minded saving operation to be investing the hard-earned cash of an ethically minded saver. And yet Toby Webb says that is exactly where his money ended up when he entrusted it to the Virgin Money climate change Isa.

Toby is no naive green investor. He is the founder of a company called the Ethical Corporation that runs conferences and a magazine that explores how companies are greening themselves.

But even he admits to being shocked when he read the small print on the progress of his investment from Virgin Money. He wrote in a blog: "I had expected the fund to be investing in clean tech firms. Exciting new technology companies set to capitalise on the next green revolution."

But Virgin had other plans for his climate-saving cash. It decided that those cutting-edge clean tech companies, which it calls "solution providers", would get "up to 10%" of the Isa's money. Note that phrase "up to". It could be zero.

Likewise the "solution adopters", would get "up to 15%". For the rest, "between 75 and 100%", Virgin simply promises to find companies with a "lighter environmental footprint". Oh, and they must show "outstanding profit growth".

What does a "lighter" footprint mean? The term turns out to be alarmingly elastic.

For a start, it does not exclude any industry. Oil and coal companies may be the villains of climate change, but that does not count them out of Virgin's climate change Isa. This, Virgin tells its customers, is "so you don't miss out on lucrative sectors like oil, gas, electricity and transportation." Hmm.

Instead Virgin applies what it calls a "green filter" to select companies with better-than-average green credentials within any industry sector. That's what it says: better than average. Impressively perhaps, Virgin says that in pursuit of this somewhat-less-than-gold standard, its consultants, Trucost, analyse no less than 700 criteria of green-ness.

Now Toby may not admit it, but he is a whizz at getting to the bottom of corporate ethical and unethical strategies. That's his business, after all. But he says, he even he had trouble finding out what the 700 filter factors were.

They seem to cover everything from cutting greenhouse emissions to doing something as banal and commonplace as "encouraging recycling in their workplaces".

To be fair, many of the big corporations on Virgin's green investment list do a bit more than encourage their staff to put their office waste paper in a separate bin. But in some sectors of industry, being "better than average" may not involve much more. So if you are a slightly better-than-average coal company, you're in.

And despite the "climate change" name, the huge ragbag of environmental criteria mean that companies do not even have to be better than average in fighting climate change.

Toby found that some of his money had gone to the French oil giant Total, which featured in my Greenwash column a few weeks ago.

Other past subjects of this column's investigations that made it into Virgin Money's good-guys list include the banks HSBC and the Royal Bank of Scotland.

And then there is the mining and metals giant, Rio Tinto. It is not everybody's idea of a climate-friendly company, being one of the world's largest coal miners. And its aluminium smelters are among the world's worst climate villains because of the company's unusually heavy reliance on burning coal for the hugely energy-hungry smelting process.

A couple of years ago, I visited one of Rio Tinto's largest aluminium smelting operations, at Gladstone in Queensland. It is hooked up to a 30-year-old coal power station. Producing the metal for each beer can there generates enough CO2 to fill 300 cans.

Yet Virgin is blithely putting its climate change Isa money into this company. Lighter footprint? Give me a break.

Also getting the green nod is British Aerospace, now called BAE Systems, one of the world's great arms manufacturers. In the last little while, BAe has been greening its image. Virgin seems to have been impressed.

Virgin says its investment policies encourage even the biggest and least-green companies to clean up their act. "This is a pressure that traditional green funds cannot exert," says press officer Scott Mowbray. "It is important that the firms from the most damaging sectors receive investment to improve their environmental credentials."

But Toby says the big guys don't need his money. It is the smaller "solution providers" that are struggling to get investment. By putting most of Toby's money instead into the likes of Total, BAe and Rio Tinto, Virgin is delivering them a damaging snub.

It is an interesting debate. But Toby is probably not the only Virgin investor who will feel let down by how Branson's best are investing money they thought was going to fight climate change.