Some of Britain's leading firms are partnering top academic institutions to develop projects that will overhaul household energy, water, transport and waste provision to drastically cut carbon emissions.

The groundbreaking partnership, led by Arup's global planning chief, Peter Head, involves 25 international companies including GE (the world's biggest company, according to Forbes). HSBC, French energy firm EDF, Thames Water, Marks & Spencer and waste management firm Biffa are also behind the plan.

Politicians and regulators are calling for a "green new deal" to help lift the economy out of recession. "Green industries alone could support a further half a million jobs over the next decade," Alistair Darling wrote in the Guardian last week.

The companies involved hope that in five years their work could create tens of thousands of jobs and push Britain into the vanguard of environmental technology. They are working with Imperial College and University College London to "retrofit" hundreds of thousands of homes, using the latest clean technology to transform energy and water efficiency.

Head, who will become chairman of a new charity, the Thames Gateway Institute of Sustainability, said: "We want to connect new developments with retrofitting technology combining energy, water and waste, improvements to recycling and the introduction of electric cars and better cycling facilities… there are tremendous advantages and business opportunities."

The "retrofitting" of Britain is the focus of the new institute, which will open a research centre this year in Dagenham, east London, as part of a 24-hectare sustainable technology business park. The centre will focus on green technology breakthroughs that can be cheaply "scaled up" to industrial proportions. "We need to move to a new industrial model. And we genuinely need this institute to power demonstration projects," said Head.

Part of the plan is to develop new financing for green projects and the group is in advanced talks with pension funds. Financiers at international investment bank Sustainable Development Capital want to see part of household and business energy and water bills ringfenced in a special fund for green developments that will be matched by pension funds.

The plan aims to take advantage of savings for firms when consumers use less energy. It implies households utility bills will not come down in spite of the savings envisaged from the scheme. The model assumes that it will cost £1bn to convert 200,000 new homes, into which communities will be divided. They could then see their neighbourhoods converted street-by-street into sustainable communities complete with energy-from-waste facilities, electric car power points and advanced water capture technology.

The Institute of Sustainability has been building up for a year as a shadow operation but has now completed the formation of a 12-strong board. Other than Head, it includes Professor Malcolm Grant, president and provost of UCL, and Keith Riley, managing director of Veolia Environmental Services. Ian Short, deputy chief executive at the London Thames Gateway Development Corporation, will be the Institute's interim chief executive.

Focusing on close-to-market environmental technology projects that are now ready to be applied on housing developments, the institute will use the huge building programme on the Thames Gateway – a 40-mile ribbon of land either side of the Thames in east London, where tens of thousands of new homes are planned – to be its worldwide showcase. Two major housing developments in north Kent are likely to be pilots for the new plan.

It will also draw on lessons learned from the 2012 east London Olympics, where a number of facilities are using the latest environmental technology to reduce emissions as well as a "soil hospital" to clean and re-use contaminated soil.

Head was the principal planning adviser on the Chinese sustainable city project at Dongtan. Though the project has stalled for internal political reasons, it has inspired the launch of the new institute in Britain, which is forging links with the Chinese authorities in what Head hopes will provide huge business opportunities.