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Bank of England will stop accepting thermal coal-linked bonds

The policy starts in October and targets thermal coal bonds used as collateral in central bank lending, citing potential financial risks from the shift toward net zero.

Reported · Written up by our desk · Central Banks

The Bank of England said it will stop accepting bonds linked to thermal coal for key loan arrangements, a move that campaigners called a strong signal to the market. The restriction takes effect in October and is aimed at thermal coal, which is burned in power plants to generate electricity.

Earlier this summer, the Bank of England said it would no longer allow commercial banks to use thermal coal linked bonds as collateral when borrowing from the central bank. The Bank issues loans to commercial banks such as Barclays, Lloyds, NatWest and HSBC so they can settle transactions and keep operations running smoothly.

Under the arrangements, banks must provide collateral, typically bonds, as a guarantee that would be kept by the central bank if they failed to repay. The Bank said thermal coal companies can face potential financial risks tied to the economy’s adjustment toward net zero.

According to the Guardian, Ellie McLaughlin of the campaign group Positive Money said the decision is intended to influence both commercial banks and broader market behavior. The article also notes that Reclaim Finance reported last September that around 150 of the world’s largest financial companies already have some kind of restrictions on business with the thermal coal industry.

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