The Bank of England announced a policy change that prohibits the use of bonds linked to thermal coal as collateral in key lending arrangements with commercial banks. The restriction takes effect in October and represents a notable shift in how the central bank manages its balance sheet exposure to high-carbon assets.
Under the new framework, commercial banks borrowing from the central bank—including major institutions such as Barclays, Lloyds, NatWest, and HSBC—will no longer be permitted to offer thermal coal-related bonds as security for those loans. The Bank justified the decision by citing financial risks associated with economic transition toward net-zero emissions, warning that thermal coal companies face potential exposure to such risks. The central bank also indicated it would apply discounted valuations to bonds in other relevant sectors to further protect against climate-related financial risks.
The policy announcement came quietly through the Bank’s website in early June, with minimal public promotion. Climate advocacy groups have characterized the move as significant, noting it sends a strong market signal about the declining viability of thermal coal investments. According to data from Reclaim Finance, approximately 150 of the world’s largest financial companies already maintain some form of restrictions on thermal coal sector engagement.
The Bank of England’s approach is considered stricter than policies currently in place at peer institutions, including the European Central Bank. However, observers noted the subdued communication around the announcement, suggesting institutional reluctance to highlight climate-related initiatives in the current geopolitical environment.
Advocates have indicated the policy’s effectiveness will depend on implementation details, particularly how the Bank calculates risk adjustments and whether exclusions might eventually extend beyond thermal coal to encompass broader fossil fuel activities and other environmentally harmful sectors.
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