The European Investment Bank has vowed to end its multibillion euro financing for fossil fuel projects by the end of next year in order to align its strategy with climate targets.

The EU’s lending arm has drafted plans, seen by the Guardian, which propose cutting support for energy infrastructure projects which rely on oil, gas or coal by barring companies from applying for loans beyond the end of 2020.

The EIB said its focus on long-term investments means that it must align with the Paris Agreement which aims to cap global heating at 1.5C above 1990 levels by cutting greenhouse gas emissions.

“This transition will be profound. Solidarity is required to ensure that potentially vulnerable groups or regions are supported,” the EIB report said.

The lender said it will set up an energy transitions fund to support projects which help EU member states to transition to a cleaner economy. In the past the EIB has funded fossil fuel projects including the Trans Adriatic gas pipeline and oil storage facilities in Cyprus.

The crackdown on fossil fuel lending comes amid growing pressure on financial institutions to cut their exposure to high-carbon projects.

Last month 80 civil society organisations and academics published an open letter to the EIB calling on the bank to end its fossil fuel financing, which topped €2.4bn (£2.1bn) in 2018.

The letter, which was coordinated by the campaign group Counter-Balance, accused the bank of “lagging behind the science” underpinning the climate crisis.

The UK has also come under criticism for increasing its support for fossil fuel projects by 11-fold to almost £2bn last year through the agency UK Export Finance. The agency’s funding for renewable energy developers fell at the same time.

Alex Doukas, from environmental campaigner Oil Change International, said: “The EIB’s proposal to end financing for fossil fuels by 2020 is a massive step forward in climate leadership. With this move, the world’s largest multilateral lender is now poised to leave oil, gas and coal in the past.

“The EU member states who control the bank must now stand behind the EIB’s ambitious climate vision, and other financial institutions should quickly follow suit to stop funding fossils,” he said.

Colin Roche, a campaigner at Friends of the Earth Europe said the proposal is “a crack of light in the darkness”.

“While the EU and national governments are floundering as the planet burns, the EU’s public bank has made the brave, correct and just proposal to stop funding fossil fuel projects. We are now urging the European Investment Bank’s board to endorse this step forward, and ensure there are no loopholes for fossil fuel funding.”