European Investment Bank (EIB) has become the first public lender to phase out financing for fossil fuels by the end of 2021, paving the way for more renewable energy projects.

The board of the bank on Friday voted strongly for a new energy lending policy to deal with the climate crisis. "We will stop financing fossil fuel and we will launch the most ambitious climate investment strategy of any public financial institution anywhere," said Werner Hoyer, president of EIB.

Under the new lending policy, more money would be made available for decentralized energy generation and e-mobility. The renewable power would constitute a 32-percent share in the European Union (EU) countries by 2030.

With the new commitment, the EIB Group will aim to support investments worth one trillion euros in climate action and environmental sustainability in the critical decade from 2021 to 2030, the EIB statement maintained.

The greenhouse gas emissions from the fossil fuel-run units have been linked to triggering global warming. More than 170 countries signed the Paris Climate Agreement to reduce emissions from energy and transportation sectors to limit global temperature rise within two degrees Celsius.

"Scientists estimate that we are currently heading for 3-4 degrees Celsius of temperature increase by the end of the century," Hoyer added.

A detailed report released last month lashed out on the multilateral development banks (MDBs) - a key source of finance for developing countries - for considerably reducing investment in the renewable energy sector. 

More than 500 million U.S. dollars' worth of financing was reduced for solar, wind and related projects between 2017 and 2018. The report ranked EIB last on the list of MDBs on phasing out fossil fuels for lending more than 15 billion U.S. dollars to fossil fuel projects.

The EIB board convened a meeting in mid-October to end funding fossil fuel projects, but the decision was deferred to November. "We commit to align all EIB Group activities with the principles and goals of the Paris agreement by the end of 2020," stressed Emma Navarro, vice president of EIB.

The bank's decision has come as a relief to environmentalists that have been advocating ceasing lending to coal, oil and natural gas-fired plants. With the annual climate summit (COP25) a few weeks away, climate negotiators would seek similar action from other MDBs, including the Asian Infrastructure Investment Bank (AIIB).

"They (EIB) have set a new global standard. All other banks, private and public, must follow suit," said Manuel Pulgar-Vidal, leader of WWF's global climate and energy practice.