London/Brussels: A group of European development finance institutions (DFIs) managing $50 billion said on Thursday they planned to stop lending money to fossil fuel projects by the end of the decade.
The Association of European Development Finance Institutions (EDFI), whose 15 government-owned members invest across emerging and frontier markets, also said it would align all new lending to the Paris Agreement on climate change by 2022.
It would also ensure that all investment portfolios achieve net-zero carbon emissions by 2050 at the latest.
"As taxpayer-funded organisations, we are committed to promoting green growth, climate adaptation and resilience, nature-based solutions, access to green energy and a just transition to a low-carbon economy," EDFI Chief Executive Søren Peter Andreasen told Reuters in a statement.
Development Finance Institutions refer to state-backed lenders such as CDC Group in Britain, Norfund in Norway and Proparco in France, which provide financing in areas like infrastructure and healthcare to help boost economic development, often in low- and middle-income countries.
The move comes a week before the world's 450 DFIs meet for the first time at a major conference in France to discuss accelerating their efforts to help in the fight against climate change as well as to boost sustainable development more broadly.
A key factor will be how open lenders in coal-reliant Asia are to any toughening of policy.
The meeting is seen as a crucial test of the countries' commitments to meeting the terms of the Paris Agreement ahead of the next round of global climate talks, COP26, to be held in Scotland in 2021.
The EDFI group said it would immediately stop financing new coal or fuel oil projects and would only finance other fossil fuel investments such as gas-fired power generation as long as they were in line with Paris, before excluding them by 2030.
The commitment includes direct investments, indirect investments made through other funds and through dedicated lending, the group said.
The group said a "significant and progressive" alignment of private capital flows to developing countries would be required to meet the United Nations' climate and sustainable development goals.
"In the lead-up to COP 26, and as countries around the world strive to achieve a sustainable recovery from the Covid-19 pandemic, it is more important than ever that European DFIs set a collective example for investors in developing markets,” EDFI said.
Next year's COP26 meeting will potentially not be attended by the world's biggest economy, after the United States exited the pact on Wednesday, although if Democrat Joe Biden wins the U.S. presidency he has said the United States will rejoin the agreement.