Ms Thunberg, 20, was due to speak at an event on August 13, but has pulled out in protest over sponsors Baillie Gifford, an investment management firm she claims invests “heavily” in fossil fuels.
The firm, however, rejected the accusation, saying 2% of its clients’ money was invested in the sector.
The event organiser said he “respects” the decision made by the activist, but said he believes Baillie Gifford to be “part of the solution to the climate emergency”.
In a statement released through the Festival, Ms Thunberg said: “I am unfortunately unable to attend the Edinburgh Book Festival.
“As a climate activist I cannot attend an event which receives sponsorship from Baillie Gifford, who invest heavily in the fossil fuel industry.
“Greenwashing efforts by the fossil fuel industry, including sponsorship of cultural events, allow them to keep the social licence to continue operating.
“I cannot and do not want to be associated with events that accept this kind of sponsorship.”
Ms Thunberg's appearance would have been her first public appearance in Scotland since Cop26 in 2021.
She branded the climate summit a "greenwash festival, a two-week long celebration of business as usual and blah blah blah."
Baillie Gifford is one of the main sponsors of the Edinburgh International Book Festival, with a number of events – including one with former prime minister Gordon Brown – taking place at venues carrying the firm’s name.
A spokesperson for the company rejected the accusations from Ms Thunberg, saying: “Only 2% of our clients’ money is invested in companies with some business related to fossil fuels.
“This compares to the market average of 11%. Of those companies, some have already moved most of their business away from fossil fuels, and many are helping to drive the transition to clean energy.
“We are investing on behalf of our clients to grow their savings and retirement funds.
“When we invest in companies on their behalf, we do so over long time periods – typically 10 years or more – so this has naturally led us away from traditional fossil fuel firms. Currently, 5% of our clients’ money is invested in companies whose sole purpose is to develop clean energy solutions.
“We believe in open debate and discussion which is why we are long-term supporters of the Edinburgh International Book Festival.”
Festival director Nick Barley said he was “disappointed”, but added: “I fully respect her decision.”
Mr Barley also sought to defend the event sponsors, saying: “However, in applauding Greta for standing by her principles, we too must stand by ours.
“The Book Festival exists to give a platform for debate and discussion around key issues affecting humanity today – including the climate emergency. As a charitable organisation, we would not be in a position to provide that platform without the long-term support of organisations such as Baillie Gifford.
“We strongly believe that Baillie Gifford are part of the solution to the climate emergency.
“They are early investors in progressive climate positive companies, providing funds to help them grow.
“While they acknowledge there is still work to do, we have seen them make rapid progress throughout our 19-year relationship.”
The director apologised to those who had bought tickets to the event at the Edinburgh Playhouse, and promised refunds.
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