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Bank of England to stop accepting bonds linked to coal for key loans
The Bank of England has announced it will stop accepting bonds linked to thermal coal as collateral for the loans it routinely provides to commercial banks, in a move climate campaigners have hailed as a significant victory. The ban, which takes effect in October, signals that the central bank now views coal-linked assets as too financially risky to hold, given the likely impact of the global shift towards net zero on their value, and campaigners hope it will push commercial banks to reassess their own exposure to the fossil fuel.
The policy, quietly published on the Bank's website in early June, means commercial lenders such as Barclays, Lloyds, NatWest and HSBC will no longer be able to use thermal coal-linked bonds as collateral when borrowing from the central bank. It goes further than similar restrictions adopted by most Western peers, including the European Central Bank, though the Bank has said little publicly about it, and campaigners such as Positive Money's Ellie McLaughlin note the approach comes despite a US-led backlash against green finance policies since Donald Trump's return to the White House. Around 150 major financial firms already restrict dealings with thermal coal, according to Reclaim Finance, but campaigners say the Bank's policy should ideally be extended to cover other "always harmful" activities, such as fossil fuel expansion and deforestation.
In short
- Bank of England will reject coal-linked bonds as loan collateral from October
- Move seen as pressuring commercial banks to drop coal-related assets
- Policy is stricter than most peers, though announced with little fanfare
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Supporters argue the Bank of England is right to stop treating coal-linked bonds as safe collateral, since climate change poses a genuine systemic financial risk and coal assets could become stranded as the world decarbonises, leaving banks exposed. They see this as prudent risk management rather than activism, arguing that central banks have a legitimate mandate to safeguard financial stability against foreseeable long-term threats, and that nudging capital away from the most polluting industries supports both environmental goals and sound economic policy.
The case against
Critics contend that central banks should remain strictly neutral on energy policy, warning that using collateral rules to disadvantage specific industries oversteps the Bank's technical mandate and edges into politically contentious territory better left to elected governments. They worry this sets a precedent for monetary authorities picking economic winners and losers, could raise borrowing costs for energy firms during a period when reliable supply still matters, and may undermine confidence in the Bank's independence and impartiality if it is seen as pursuing climate activism rather than pure financial stability.
Explained simply
The Bank of England is the UK's central bank and lends money to commercial banks like Barclays and HSBC. It accepts various assets as collateral in exchange for these loans – essentially using them as a guarantee that the money will be repaid. Starting in October, the central bank announced it will no longer accept bonds (financial investments) linked to thermal coal as this collateral.
This move matters because the Bank now views coal-related investments as financially risky. The global shift towards net zero emissions means demand for coal is expected to fall significantly, which could make coal-linked assets worth far less in the future. By refusing to accept these bonds, the Bank is signalling it no longer considers them safe enough to hold, and this may encourage commercial banks to reassess their own coal investments.
The policy reflects a broader trend among major financial institutions to restrict dealings with fossil fuels. Around 150 large financial firms already have some restrictions on thermal coal, and several of the Bank's European counterparts have adopted similar policies. However, climate campaigners argue more could be done, calling for the Bank to extend such restrictions to fossil fuel expansion and deforestation.
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