AIB has appointed SME and sustainable infrastructure investment manager Foresight Group to manage a new equity fund for small and medium sized enterprises.
The AIB Foresight SME Impact Fund will back businesses helping to accelerate the country's transition towards a low-carbon economy.
AIB is providing an investment of €30m to the fund which aims to raise €75m to stimulate job creation and ensure a greener future across the island of Ireland.
The bank said the new fund will typically provide equity investments of €2-€5m but will have the ability to make larger or smaller investments.
The AIB Foresight SME Impact Fund will be open to firms in both the Republic of Ireland and Northern Ireland and is expected to contribute significantly to job creation as well as delivering economic growth and broader long-term benefits across the island.
Foresight's private equity funds created more than 500 high-quality, sustainable jobs across the UK last year.
"As Ireland's largest financial services provider with 2.8 million customers, AIB is committed to supporting the transition to a low-carbon economy, reducing our own carbon footprint and helping our customers to do the same., AIB Managing Director of Capital Markets Cathy Bryce said.
Ms Bryce said the bank's ambition is that green and transition lending will account for 70% of new lending by 2030.
"But as well as taking action through lending, AIB is ensuring equity has a key role to play in backing the green businesses of the future. That is why we are delighted to be partnering with Foresight, whose strong environmental, social and governance focus will be invaluable to small companies with big ambitions to play a role in Ireland's transition to a low carbon economy," she added.
Foresight Partner James Livingston said the new partnership will see the UK firm open an office in Dublin which will support Irish SMEs across the whole decarbonisation agenda.
"Energy generation is just the start of the low carbon journey, and we need to change the way we live, work, what we consume and how we travel," he said.
"We will seek to invest across the spectrum of the low carbon agenda, from companies enabling the circular economy, to advanced technology which supports smart cities, from enlightened consumer businesses taking market share from more environmentally damaging competitors, to the services companies that enable the transition to happen," he added.