The Bank of England announced earlier this summer that it would no longer permit commercial banks to use bonds connected to thermal coal as collateral when borrowing funds from the central bank. The policy takes effect in October and represents a notable shift in how the central bank manages financial risk on its balance sheet.
Commercial banks such as Barclays, Lloyds, NatWest, and HSBC regularly access loans from the central bank to maintain operations and settle transactions. These institutions must provide collateral—typically in the form of bonds—as security for the borrowed funds, which the central bank would retain if the borrower defaults. The central bank’s decision to exclude thermal coal-linked bonds from acceptable collateral reflects concerns about the long-term viability of these assets as the global economy transitions away from fossil fuels.
In its policy statement, the Bank of England cited exposure to financial risks stemming from economic adjustments toward net zero emissions. The central bank indicated it would also discount the value of bonds in other relevant sectors to address climate-related financial risks. The policy represents a stricter stance than those adopted by comparable institutions, including the European Central Bank.
Climate advocacy groups have characterized the decision as significant, with representatives noting that it sends a clear market signal about financial risk. According to data from Reclaim Finance, approximately 150 of the world’s largest financial companies already maintain some restrictions on thermal coal industry dealings. However, observers have noted the Bank of England released the policy with limited public announcement, posting it to its website in early June without major fanfare.
Campaigners have suggested the policy’s effectiveness will depend on implementation details, particularly how the central bank calculates risk adjustments and whether restrictions expand beyond thermal coal to encompass other harmful activities. Some advocates have called for the policy to extend coverage to all fossil fuel expansion and deforestation-related activities.
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