Uber Chief Executive Officer Dara Khosrowshahi said the money "would not accrue to the benefit of Uber," but be put in individual savings account for each driver.
Uber's new fund is part of its plan to only have electric vehicles on London's roads by 2025.
The company said that when drivers upgrades to electric vehicles using the new fund, they would be completely free to work without obligations to use the vehicle for only Uber journeys.
Jamie Heywood, Uber's European boss, said an average driver working 40 hours a week over three years "could expect to save 4,500 pounds on the cost of an EV."
If a driver stops working for the company before taking advantage of the fund, the money will be spent on other clean air initiatives.
The announcement comes days before Uber heads to a London court to appeal a court ruling that its drivers should be entitled to benefits, including overtime and paid vacation. The court is expected to hear Uber's arguments on Oct. 30.