According to Reuters, the new policy will mean that any energy projects applying for funding from the EIB will be required to demonstrate that they can produce 1 kWh of energy while emitting lower than 250 g of CO2. As a part of this effort, the European Central Bank's (ECB) new president, Christine Legarde, has also promised to direct the ECB to focus more closely on climate-related risks in its stress tests for banks.
The EIB deal resolved a two-month deadlock where Germany and some central European nations sought to soften the proposed rules and make certain natural-gas projects eligible for financing.
The Institute for Energy Economics and Financial Analysis estimates that more than 100 financial institutions globally are moving away from coal lending, "including 40% of the top 40 global banks and 20 globally significant insurers".
"The EIB is sending a message to other financial institutions that investment in fossil fuels is drawing to an end", he said.
"This is not a last step, there are many more steps to come", McDowell said.
The new strategy will see EIB gradually increase the share of its financing dedicated to climate action and environmental sustainability to reach 50% of its operations in 2025 and from then on. With EU leaders considering committing to climate neutrality by 2050, Europe is a step ahead of other major emitters, including China, India and Japan, which haven't so far translated their voluntary Paris pledges into equally ambitious binding national measures.
"Clearly the best way to underline the need for these new gas technologies would be to introduce EU-wide binding targets for renewable and decarbonized gas, such as countries like France have done with a 10 percent target for renewable gas by 2030", Watson said.
Gas projects are still possible, but would have to be based on "new technologies" such as carbon capture and storage, combining heat and power generation, or mixing in renewable gases with the fossil natural gas. The bank will continue to approve projects already under appraisal as well as gas projects on the EU's Projects of Common Interest list.
Environmental organisations celebrated the EIB decision, but expressed disappointment at the one-year delay.
EIB President Werner Hoyer said the new policy marked a "quantum leap in its ambition" in addressing climate change.
French Economy Minister Bruno Le Maire said it was "a landmark decision" that confirmed the European Union had "financial means to match its climate ambitions".
Despite its tough talk, Germany was one of the countries which had resisted a complete end to fossil fuel funding by the EIB.
It postpones the end of financing to gas projects until 2021, which opens a gap for billions of Euros to be lent to gas at a time when scientists tell us there is no more space in the environmental budget for fossil fuel emissions. Although the European Commission had pushed for more gas to be included, in the end it supported the proposal.