The Bank of England announced it would no longer permit commercial banks to use bonds linked to thermal coal as collateral when borrowing from the central bank, according to a policy statement released in early June. The restriction takes effect in October. Central banks regularly extend loans to major commercial lenders to ensure smooth operations and transaction settlement, with the borrowing institutions required to provide collateral, typically bonds, as security.
Climate campaigners have characterized the move as a significant development in addressing one of the most carbon-intensive fossil fuel sectors. The Bank of England justified the policy by noting that thermal coal companies face potential financial risks stemming from the global economic transition toward net zero emissions. Officials indicated the central bank would also adjust the valuation of bonds in other relevant sectors to mitigate financial exposure to climate-related risks.
The policy represents a stricter approach than those currently implemented by many Western counterparts, including the European Central Bank. Notably, the Bank of England released the policy with minimal public attention, posting it on its website without major announcement. Policy advocates acknowledged the significance of the measure while noting the central bank has been less vocal about its climate initiatives in recent years.
Experts monitoring the policy have raised questions about its ultimate effectiveness, particularly regarding how the Bank will calculate specific adjustments to bond values and whether exclusions might eventually extend beyond thermal coal to encompass broader fossil fuel activities and other environmentally harmful sectors. The policy announcement comes as a US-led retreat from climate-focused financial regulations has prompted most major financial institutions to scale back their green commitments since earlier in the year.
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