The Bank of England announced a policy change that prohibits commercial banks from using bonds linked to thermal coal as collateral when borrowing from the central bank. The policy takes effect in October and has drawn praise from climate advocacy groups who view it as a meaningful step toward reducing financial support for high-emission industries.
The central bank provides regular loans to major commercial lenders to facilitate transaction settlements and operational continuity. Banks typically offer bonds as collateral to guarantee repayment, with the central bank retaining these assets if the borrowing institution defaults. Under the new guidelines, thermal coal-related bonds no longer qualify as acceptable collateral for these arrangements.
Bank of England officials indicated that thermal coal companies face substantial financial risks as economies transition toward net-zero emissions targets. The policy statement noted that the central bank would also adjust valuations downward for bonds in other relevant sectors to mitigate climate-related financial exposure. This approach proves stricter than policies currently in place at peer institutions such as the European Central Bank.
The announcement garnered limited public attention after the Bank released the policy quietly on its website in early June. According to recent data from Reclaim Finance, approximately 150 of the world’s largest financial institutions already maintain some form of restrictions on thermal coal sector engagement. Advocates expressed hope that the Bank of England’s stance would encourage commercial lenders to reconsider holding coal-linked assets on their balance sheets.
Critics noted potential limitations in implementation, particularly regarding how the Bank calculates risk adjustments and whether exclusions might expand beyond thermal coal to encompass broader fossil fuel activities. Observers also highlighted that the Bank has reduced its public communication regarding climate initiatives in recent periods, against a backdrop of heightened global opposition to environmental policies.
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