The Asian Development Bank will stop financing new coal power plants under a draft energy policy released Friday that was cautiously welcomed by environmental groups.
The ADB, which provides loans and grants for projects in the poorest countries in the Asia Pacific region, said its current policy was "no longer adequately aligned with the global consensus on climate change".
"Coal and other fossil fuels have played a large part in ensuring access to energy for the region's economic development, but they have not solved the energy access challenge, and their use harms the environment and accelerates climate change," the Manila-based bank said in the document.
The lender will also no longer fund "any coal mining, oil and natural gas field exploration, drilling or extraction activities", it said.
However, under certain conditions, it would provide funds for natural gas projects and "hybrid electricity solutions" involving fossil fuels as backup systems, according to the draft.
Between 2009 and 2019 the ADB funnelled $42.5 billion into energy sector projects in Asia, where around 60 percent of electricity is generated by coal, its data show.
The final version of the energy policy is expected to be submitted to the ADB board of directors by October.
Earlier this week, US climate envoy John Kerry called on the ADB to adopt a "more restrictive fossil fuel financing policy", warning that island nations faced a situation "beyond existential" due to climate change.
While welcoming the ADB's policy proposal, Greenpeace said it was "long delayed and incremental".
"Communities throughout Asia have struggled for decades to demand ADB to stop financing dirty energy," Greenpeace Southeast Asia programme director Jasper Inventor said in a statement.
"While this new policy puts the brakes on coal financing, it still opens doors for fossil gas development."
Hasan Mehedi from the Coastal Livelihood and Environmental Action Network in Bangladesh said it was a "sweet victory".
But he said the ADB must "urgently phase out fossil gas, waste to energy, and large hydro projects to achieve the Paris Goal of staying below 1.5 degrees".
The goal of checking global warming at 1.5 degrees Celsius (2.7 degrees Fahrenheit) above pre-industrial times was the aspiration set in the Paris Agreement to avoid the most severe effects of climate change.
Speaking at a seminar during the ADB's annual meeting, Kerry called for an end to fossil fuel subsidies and coal plant financing.
He warned the 20 countries responsible for most of the world's emissions were not "moving in the same direction" or fast enough to tackle warming.
ADB president Masatsugu Asakawa told the same seminar that the Asia Pacific -- which includes China, the world's biggest polluter -- was responsible for about 50 percent of global greenhouse gas emissions.
As the market for coal, oil and gas rebounds this year, he warned that more than 80 percent of the expected growth in coal demand would be from Asia.