Royal Bank of Scotland (RBS) is under fierce attack for investing hundreds of millions of pounds in US companies which remove the tops of mountains in order to scoop out coal inside.

More than 500 mountain summits have been removed by explosives in the Appalachians in West Virginia over the last few years. Not only is the environment trashed and sights of natural beauty destroyed, but the process also releases toxic wastes into streams, pollutes the air and threatens the health of local communities.

RBS has been named in a report as the world's seventh-biggest financial backer of mountaintop removal (MTR), with £235.6 million ($362.5m) worth of lending and underwriting in 2012.

A number of major American mining companies have benefited from RBS money.

RBS is set to come under fire from protesters for funding such large-scale environmental destruction at its annual general meeting, which takes place at its Gogarburn site on the outskirts of Edinburgh on Tuesday. Campaigners will be calling for the bank to pull out of MTR.

Paul Daly, corporate accountability campaigner with Friends of the Earth Scotland, said: "RBS is still financing corporations which undertake horrific operations like MTR, threatening the local environment and adding to climate change globally.

"The corporations financed by RBS act with complete disregard for local residents, spreading toxic chemicals in the air, water and soil. This results in health complications from cradle to early grave."

The scale of the destruction in the US was "almost unimaginable", Daly argued, adding: "RBS needs to accept that renewable energy is the way forward and get out of fossil fuels, starting with these obscene mountaintop removal schemes."

Extreme Investments, a report on the US coal industry by the Rainforest Action Network, Banktrack and green group the Sierra Club, lists RBS along with Citigroup, Barclays, Morgan Stanley and others as the main backers of MTR.

It also says that RBS is one of the top three banks backing coal-fired power in the US, with $1555m (£1000m) of lending and underwriting in 2012.

According to Paul Corbit Brown, from the Keeper of the Mountains campaign group in the Appalachians, more than 20 peer-reviewed scientific studies had shown that MTR brought illness and death to mining communities. He told the Sunday Herald: "The studies estimate more than 4000 excess deaths in Appalachia annually, as a result of exposure to environmental pollution by coal mining."

Corbit Brown, who is due to speak at a public meeting in Edinburgh tomorrow evening, accused RBS of unethical investment.

"There is nothing ethical about mountaintop removal," he said. "It permanently destroys air, water, soil, communities and people's health. It has brought nothing but poverty and sickness to the communities in my home state."

RBS accepted there was concern about the impacts of MTR, and has identified it as a heightened environmental and social risk. It is reviewing its policies and approach to MTR companies.

A spokeswoman said: "We apply enhanced environmental and social due diligence to our clients involved in MTR, and where relevant engage with them on how they can improve performance to meet positive standards of corporate responsibility.

"We welcome the efforts of the Virginia state and US governments as well as certain parts of the industry to reduce this sector's social and environmental impacts through regulatory measures."