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The Bank of England will stop accepting corporate bonds issued by companies that generate revenue from thermal coal mining as collateral for loans provided through its Sterling Monetary Framework from October 31, 2026.
The change means commercial banks will no longer be able to use those bonds to access central bank liquidity, requiring lenders that rely on them to replace affected assets before the new rules take effect. The Bank will also apply additional valuation “haircuts” to bonds issued by companies exposed to net-zero transition risks, reducing the value assigned to those securities when used as collateral.
The measures expand the Bank’s efforts to incorporate climate-related financial risks into its operations. While the policy does not prevent banks from owning coal-linked bonds, it makes them ineligible for one of the central bank’s key lending facilities.
Details
- Collateral rule change: Corporate bonds issued by companies that derive revenue from thermal coal mining will no longer qualify as collateral under the Sterling Monetary Framework from October 31.
- Impact on banks: Commercial banks using coal-linked bonds to secure central bank funding will need to replace those assets or find alternative uses for them before the deadline.
- Transition-risk adjustments: The Bank will also apply additional valuation “haircuts” to corporate bonds issued by companies exposed to climate-related transition risks, reducing the amount banks can borrow against those securities.
- Broader policy expansion: The measure extends climate-related restrictions already applied under the Bank’s Corporate Bond Purchase Scheme into the Sterling Monetary Framework, which underpins routine liquidity operations between the central bank and commercial lenders.
- Financial risk focus: The Bank said the changes are intended to protect its balance sheet from financial risks associated with the economy’s transition to net zero rather than to prohibit investment in coal-related assets.
What Else
- Banks have five months to adjust: The October 31 implementation date gives commercial banks time to replace ineligible collateral and update their liquidity management strategies before the new rules come into force.
- Part of a broader central bank trend: The move aligns with wider efforts by central banks to incorporate climate-related financial risks into monetary operations, although the Bank of England’s approach is more explicit than many of its international counterparts.
- Campaigners seek broader restrictions: Environmental groups welcomed the decision but argued the Bank should extend similar restrictions beyond thermal coal to other high-emission activities, including fossil fuel expansion and deforestation.
