BoE outpaces ECB by banning thermal coal bonds as collateral
The Bank of England will stop accepting thermal coal-linked bonds as collateral from commercial banks in October, a move that outstrips the European Central Bank and prices climate transition risk directly into the UK's financial plumbing.
Starting in October, the Bank of England will no longer allow commercial lenders to use bonds tied to thermal coal to secure short-term liquidity. The central bank quietly published the policy on its website in early June, confirming that it views the heavily polluting fuel as a financial liability rather than a viable asset.
Commercial banks such as Barclays, Lloyds, NatWest and HSBC rely on these central bank loans to settle daily transactions and keep operations running smoothly. If a bank fails to repay, the central bank keeps the provided bonds. By rejecting thermal coal bonds as collateral, the Bank of England is effectively declaring that the global shift toward net zero threatens to wipe out the value of these assets.
This stance is notably stricter than the framework currently used by the European Central Bank or other western counterparts. The Bank of England explicitly warned that thermal coal companies “can be exposed to potential financial risks connected to the adjustment of the economy towards net zero”. It added that it will also discount bonds in other sectors “to protect the Bank against financial risks”.
The timing is striking given the broader political climate. Financial firms have largely rowed back on climate goals amid a US-led backlash against green policies since Donald Trump returned to the White House. “It does make that environment within which they operating much more difficult,” said Ellie McLaughlin, a senior policy and advocacy manager at the campaign group Positive Money.
Roughly 150 of the world's largest financial companies already restrict thermal coal dealings, according to figures published last September by the Paris-based non-profit Reclaim Finance. Campaigners hope the Bank of England's move will push commercial banks to further purge these highly polluting assets from their own balance sheets.
McLaughlin noted that the central bank has kept a low profile regarding its climate efforts lately. “The Bank of England has been much less vocal about this and its wider climate work in recent years, for kind of various reasons,” she said. While she called the policy “a strong signal from a central bank, and to the market as well”, she cautioned that its ultimate impact remains uncertain.
“We’ve yet to see how the Bank will calculate haircuts to account for climate risks, and exclusions should extend beyond thermal coal to cover all ‘always harmful’ activities,” McLaughlin added. “It’s quite significant, but there are definitely a lot of areas where the Bank could be going further.”
