The Bank of England announced it would no longer accept bonds tied to thermal coal operations as collateral when commercial banks borrow from the central bank. The policy takes effect in October and represents a significant shift in how the institution manages financial risk on its balance sheet.
The central bank provides regular loans to major commercial lenders including Barclays, Lloyds, NatWest, and HSBC to facilitate transaction settlement and operational continuity. Banks typically offer bonds as collateral to secure these arrangements, which the central bank retains if borrowers fail to repay. The new restriction prevents thermal coal-linked bonds from serving in this capacity.
The Bank of England justified the decision by noting that thermal coal companies face exposure to financial risks stemming from economic shifts toward net zero emissions. The institution indicated it would also apply adjusted valuations to bonds in other relevant sectors to mitigate climate-related financial risks. The policy is considered stricter than approaches adopted by peer institutions in Western nations, including the European Central Bank.
Climate advocacy organizations have characterized the move as a meaningful signal to financial markets about the perceived riskiness of thermal coal investments. Approximately 150 of the world’s largest financial firms already maintain some form of restrictions on thermal coal business activities. Nevertheless, observers note the Bank of England released the policy with minimal public communication, posting it to its website in early June without substantial announcement.
Analysts suggest the policy’s ultimate effectiveness will depend on implementation details, particularly how the Bank calculates adjustments for climate-related risks. Some advocates have called for the restrictions to extend beyond thermal coal to encompass broader categories of harmful activities, including fossil fuel expansion and deforestation.
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