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Virgin Money and investment greenwash

 I recently signed up for Virgin’s Climate Change ISA.

That’s a tax efficient investment product based on stocks and shares, sold here in the UK. I’m not sure how they work elsewhere.

My statement recently arrived, and the fund looking after my money is doing rather well. (continues below)

                                                                                                                    All you need to be a leader!

I was surprised. I hadn’t checked who the companies were when I began investing.

That was a mistake. Always important, after all, to know to whom your money is going.

So I’ve looked into it. And the findings are quite interesting.

I had expected the fund to be investing in clean tech firms. Exciting new technology companies set to capitalise on the next green revolution. It’s a risky investment, as the website told me.

But I thought I should put some of my money (such as it is!) where my mouth is. And perhaps make a profit too.

I assumed this would be a long term investment. Risky companies perhaps, but with growth potential. 

Now I’ve looked into where the cash goes. You’ll be surprised.

Treading lightly?

More on that in a minute. The Virgin Money Climate Change ISA marketing copy, on the Virgin Money website here, proudly states that:

“The Virgin Climate Change ISA invests in specially selected businesses (predominantly in the UK and Europe) who aim to drive outstanding profit growth and have a lighter environmental footprint.”

“Fine”, I thought. “That sounds potentially good. Prefer the footprint part first, but like the ‘lighter’ idea”.

However, on re-reading it, a small alarm bell ought to have gone off. Where’s the mention of green or clean tech?

I read on.

Virgin goes on to say that: “Some ‘green’ funds fail to give decent returns because they exclude lucrative sectors like oil and gas.”

Oh oh, this is a bit worrying for a climate change fund, isn’t it? Then this:

“The Virgin Climate Change Fund is different. It recognises that environmentally aware companies in all industries are starting to gain a competitive advantage and are making a difference. So we first identify stocks from any industry we believe have the highest potential investment returns, then ‘cherry pick’ the best from an environmental point of view.”

Ok, so I’m mildly re-assured for a moment. “Making a difference”, sounds a bit clean tech, almost.

Then the marketing copy tells me:

“Most environmental funds exclude entire industry sectors – like oil, gas, electricity and transportation – on ethical grounds…this approach excludes some of the companies with the highest growth potential. This leaves the fund manager with a smaller pool of companies from which to select the best performers. The net result? A smaller portfolio, restricted investment opportunities, less diversity and increased volatility”

Hmm, I’m concerned again. Surely a climate change fund should be cherry picking carefully selected clean technology and green innovation companies from the long list of firms out there today?

High and low performers

An image apparently representing the whole stock market then appears. And the sales copy says:

“No industry exclusion filters means we include all industries – so you don’t miss out on lucrative sectors like oil, gas, electricity and transportation. Our approach gives the fund manager a larger pool of companies from which to cherry pick the high performers and exclude the low performers”

Virgin than says its green filter selects the companies “with good environmental credentials” for the final portfolio.

So what is Virgin’s green filter? It’s hidden away in the depths of the Virgin money website.

(Trust me, you really wouldn’t find it. I only found it because I asked where it was when I was on the phone and was guided to it, step by step, twice)

The green filter is a PDF found on the website equivalent of the back of the cupboard under the stairs, the one you forgot was there until you needed some shoe polish.

Real corporate responsibility, described…

Here’s the statement that describes what it is, from the PDF on Virgin Money’s website:

“The Fund invests primarily in liquid listed European equities of issuers in all sectors to develop a portfolio of securities of companies which benefit either directly, or via sustained competitive advantage from pursuing environmentally aware capitalism. For example, companies taking positive action on the corporate responsibility front by promoting environmentally aware behaviour internally, such as encouraging recycling in their workplaces, adopting a carbon emission offsetting programme or recycling side products such as the re-injection of CO2 in oil exploration.”

Hang on a minute. “Encouraging recycling in their workplaces” ?

So an oil company could get into the Virgin Money Climate Change ISA fund by encouraging employees (not ordering them), to have a recycling bin in their office.

Is that really green? No, not at all. And it doesn’t do a lot for the climate either, really.

Among the holdings by the fund, revealed in the hidden PDF, are:

Tullow Oil, BAE Systems, BHP Billiton, HSBC, Royal Bank of Scotland, Total, Arcelor Mittal, Novo Nordisk and Rio Tinto.

Now, I’m not saying that BHP Billiton and the other companies above are not doing their best to cut carbon emissions. They are. Novo Nordisk has made great efforts. Imperial Tobacco has also made good progress.

But are these the kind of companies you expect to find in this portfolio? I was surprised.

Investing in stopping climate change? No

No wonder the fund is doing quite well given the recent uptick in stock prices since March this year.

But surely it shouldn’t be called a “Climate Change” investment product.

That’s greenwash really. Accidental or deliberate. And I’d wager it’s not accidental.

This makes me wonder: If Virgin is doing this, and getting away with it, who else is doing this?

And how many companies of the future, real climate change leaders, are not getting the money they need because it’s going to big firms who can manage quite well without this cash?

It’s not the fault of the companies I’ve mentioned. They are all doing their best. It’s the investment managers at places like Virgin Money who ought to be ashamed of themselves.

Without really realising it, they are setting back progress in tackling climate change through new technologies, and mis-selling products at the same time.

Do we want to do business with companies who do this? I don’t think I do.

5 Comments

  1. Scott Mowbray

    Toby – I read your blog with interest. I work at Virgin Money and I'd like to respond if I may.

    I think you make a great point in general about the importance of understanding what you are investing in. If in doubt I would always recommend seeking professional advice.

    The Virgin Climate Change Fund is designed for someone who wants a position in European equities, performance and environmental benefit with no pick up in volatility. As you rightly point out it doesn't only invest in high volatility providers of alternative energy / clean technology solutions.

    The strategy is based on three main components.

    1) Stocks in the GLG European Equity Fund are put through a “Green Filter”, which restricts holdings to those that have a lighter than average environmental footprint in their sector, based on data from Trucost plc, the environmental consultancy. Trucost assess over 700 factors like greenhouse emissions, resource usage, water usage, nuclear waste, acid rain and smog precursors, use of heavy materials and production of general waste to produce a company's 'footprint'. This is then shown as a % of a company's value thus allowing us to quantify individual company's environmental costs financially and rank them as heavier or lighter polluters in their sector. The companies in the lighter half are those the VCCF may invest in. This will typically account for 75-100% of the weightings in the Virgin Climate Change Fund.

    2) The “Solution Adopters”. Companies that are world leaders in seeking and adopting ways to minimise their footprint. This may account for up to 15% of the Fund.

    3) The “Solution Providers”. Companies that own the intellectual property for the solutions to environmental problems, including the Alternative Energy stocks. This may account for up to 10% of the Fund.

    We do not consider the VCCF fund to be ethical, nor dark green, but a fund that lives in the real world focused on economic returns with low volatility and a lighter environmental footprint – currently 38% lighter than the MSCI Europe.

    I believe the effect of this type of investing will be to see the stocks of lighter-footprint companies outperforming those of heavier-footprint companies. And in my view, nothing can bring greater pressure to bear on company management to lighten their footprint than seeing their competitors' share prices outperform theirs. This is a pressure that traditional green funds cannot exert and (i believe) should benefit both investors and the environment in a more tangible way than the traditional 'clean tech' only approach, which is a small part of the answer.

    In summary, some industries which might be perceived as 'bad' from an environmental standpoint actually have a very big role to play in developing sustainable energy sources for the future. I believe it would be foolish to marginalise these companies by restricting investment in them when they may well hold the key to a greener future.

    Here's a link to how it works for those interested.

    http://uk.virginmoney.com/virgin/isa/ccf/how-it-works.jsp#

    Thanks, Scott Mowbray

  2. Very valuable post and surprised to see this hasn't got more play.

    Anything marketed as a 'climate change ISA' which includes the companies you spotted is obviously Greenwash.

    People opting for this ISA over others don't want anything other than what you suggest in your introduction. They don't want Rio Tinto or, god help us, BAE. They've been sold a product and who reads the small print?

    This should be filed under the 'department of the bleeding obvious'.

  3. Scott,

    I can understand your reasoning. However, many companies use their participation in things like this fund to suggest, widely, repeatedly and in public, that their actions are truly "green" and sustainable.

    Take Rio Tinto, for example. The company has received a number of awards for ethical and environmentally sustainable behavior while the company itself has trampled on indigenous rights, workers' rights and the environment for decades.

    Last September, Norway's Government Pension Fund-Global divested nearly a billion dollars in Rio Tinto shares, after a very reasoned and slow internal discussion that led to a conclusion that the company's actions in West Papua are "grossly unethical."

    Yet, Rio Tinto continues to win awards that assist them in their greenwashing (which, incidentally, they do a very sophisticated job of, having sparked the Global Mining Initiative in the mid-90s in an effort to transform the industry's public image).

    I guess my suggestion is simply that, while the Virgin Climate Change Fund may be more "green" than others and companies that do bad things are involved in other activities, as well, consideration must be given to the fact that many companies, like Rio Tinto, use their inclusion in such activities to claim that they are an ethical and green company.

    Perhaps it should be made more clear that "Climate Change Fund" is something of a misnomer and that many listed companies (like Rio Tinto – one of the largest coal producers in the world) actually do very little to lessen climate change and the things that they do contribute occur simply as a result of the sheer size of their operations.

  4. Anonymous

    If you wanted a green tech fund why did you not go and buy one?

    Perhaps read the fund description before investing!?

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