The Scottish and British governments announced Edinburgh would serve as the headquarters of a so-called Green Investment Bank. London would host the main transaction team.
"It makes every sense to locate the Green Investment Bank headquarters in Edinburgh and now we must all get to work on the crucially important job of channeling investment into low carbon projects to move the sector onto a strong commercial footing," Scottish First Minister Alex Salmond said in a statement.
Salmond said the British government needs his target of meeting 100 percent of the electricity demand by 2020 in order to meet its renewable energy targets.
The bank is designed to accelerate private sector investment in the renewable energy sector as part of a so-called Green Deal. London estimates at least $240 billion is needed during the next 20 years to finance renewable energy objectives.
"Edinburgh has a thriving green sector and respected expertise in areas such as asset management," said British Business Secretary Vince Cable. "London, as the world's leading financial center, will ensure that the GIB's transaction team can hit the ground running."
The bank won't be able to borrow money until 2015.