Bank of England Excludes Coal-Linked Bonds from Collateral, Sending a Strong Signal to Markets

The Bank of England has updated its policy to no longer accept thermal coal‑linked bonds as collateral for its key lending operations.

The Bank of England’s Collateral Tightening and Market Impact

The ban, effective from October, will affect major UK lenders such as Barclays, Lloyds, NatWest and HSBC, which rely on the central bank for liquidity to settle transactions. By labeling coal‑linked debt as “too risky” for its balance sheet, the Bank signals that the transition to net‑zero could erode the value of these assets.

■150 of the world’s largest financial firms already maintain restrictions on thermal coal exposure, according to Reclaim Finance’s September data.

■The Bank plans to apply haircuts to collateral values to capture climate risk, though the exact methodology remains undisclosed.

■Campaigners urge the policy to expand beyond coal to cover all “always harmful” activities, including fossil‑fuel expansion and deforestation.

Global Energy Transition and Central Bank Policy

Against a US‑led backlash on green initiatives following Donald Trump’s return to the White House, the Bank of England’s move stands out as stricter than those of its Western peers, including the European Central Bank, which has yet to adopt comparable measures.

Ege Kaan: The Bank of England’s step forces climate risks onto balance sheets, which could tighten liquidity in funding markets and widen spreads in short‑dated bond markets.