The Bank of England has announced it will no longer accept bonds linked to thermal coal as collateral for key loan arrangements, a move that climate campaigners have hailed as a significant victory. The ban, effective from October, targets thermal coal—one of the most polluting fossil fuels—and signals that such assets are now considered too risky for the central bank's balance sheet.
Details of the New Policy
The Bank of England quietly updated its policy in early June, stating that commercial banks—including Barclays, Lloyds, NatWest, and HSBC—can no longer use bonds tied to thermal coal when borrowing from the central bank. These loans are essential for banks to settle transactions and maintain daily operations. In return, banks must provide collateral, typically bonds, which the central bank would keep if loans are not repaid.
The policy explicitly cites financial risks: thermal coal companies "can be exposed to potential financial risks connected to the adjustment of the economy towards net zero." The Bank will also discount the value of bonds in other relevant sectors to protect itself against financial risks.
Impact on Financial Markets
According to data from Reclaim Finance, a Paris-based nonprofit, about 150 of the world's largest financial institutions already impose some restrictions on dealings with the thermal coal industry. Campaigners hope the Bank of England's move will pressure commercial banks to reconsider holding such assets.
Ellie McLaughlin, senior policy and advocacy manager at Positive Money, called the policy "a strong signal from a central bank, and to the market as well." She noted that the Bank of England has been less vocal about its climate work in recent years, partly due to a US-led backlash against green policies since Donald Trump's return to the White House. "It does make that environment within which they operating much more difficult," she added.
Comparison with Other Central Banks
The Bank of England's policy is far stricter than those of most Western counterparts, including the European Central Bank. However, the effectiveness will depend on implementation details. "We’ve yet to see how the Bank will calculate haircuts to account for climate risks, and exclusions should extend beyond thermal coal to cover all 'always harmful' activities," McLaughlin said, including fossil fuel expansion or deforestation. She concluded: "It’s quite significant, but there are definitely a lot of areas where the Bank could be going further."
