Labour has pledged to review how hundreds of millions of pounds of foreign aid is spent through the government’s private finance arm and rebrand it as a green development bank.

In a key manifesto commitment, Labour promised to overhaul the CDC, which has received £2bn from the aid UK budget since 2016 to invest in projects in poorer countries.

The revamp would bring an end to the bank’s investments in fossil fuel infrastructure, private for-profit health or education companies, and private equity funds, as well as opening it up to public investment in the global south, said the party.

The bank has struggled to demonstrate how its investments cut poverty, according to successive audits over the past three years.

In March, CDC was criticised by the aid watchdog, the Independent Commission for Aid Impact, for failing to reach and benefit the world’s poorest by concentrating investment in wealthier developing countries.

In 2018, Cafod, the Catholic international development charity, undertook an analysis of CDC’s energy investments, including a £29.5m loan for a heavy fuel oil power plant in Guinea. The agency concluded that the CDC used aid in “a way that contradicts the UK government’s objectives on climate change”.

The shadow secretary of state for international development, Dan Carden, said: “The CDC desperately needs real change. Labour will ensure that all our aid money genuinely supports efforts to end global poverty, inequality and climate change by making fundamental reforms to guarantee this.

“Revamping the UK’s development finance institution so that it works with governments in the global south to manage their own green transitions is part of how a Labour government will ensure climate justice for those countries who have done the least to cause the climate crisis.”

Labour’s plans for CDC include a “drastic” reduction in targets for the rate of return on investments and to ensure companies receiving money guarantee minimum pay, conditions and union recognition for employees.

The bank, which is wholly owned by the Department for International Development, aims to “support the building of businesses throughout Africa and South Asia, to create jobs and make a lasting difference to people’s lives in some of the world’s poorest places”.

The Guardian contacted CDC for a response. It was unable to provide comment, because of purdah rules ahead of the general election.

In evidence to a parliamentary inquiry in February, Colin Buckley, CDC’s head of external affairs, told MPs that the company has committed more than $500m (£386m) to renewable energy, which represented 25% of its commitment, up from 5% in 2016.

He said CDC was in the process of divesting from fossil fuels, adding that investment in the power plant in Guinea was “rare” and was intended to provide a short-term, cleaner alternative to kerosene.

In September, the Guardian reported that CDC was investigating the alleged murder of a Congolese activist by a security guard in the employ of Feronia, a palm oil company part-funded by the bank. It is understood that the investigation, undertaken by Ibis Consulting, will conclude that the killing of Joël Imbangola Lunea had nothing to do with the accused’s status as a Feronia employee.