The Bank of England has delivered a significant blow to the fossil fuel industry by restricting the use of bonds linked to thermal coal as collateral for its key lending arrangements with commercial banks, effective from October 2026. This policy shift is expected to have a profound impact on Britain's financial sector, with major high street names such as Barclays, Lloyds, NatWest, and HSBC among those that will be affected. According to the Bank's policy document, companies involved in thermal coal production are deemed "exposed to potential financial risks connected to the adjustment of the economy towards net zero". This represents a stark warning for investors and banks alike, with £12.3 billion worth of UK-listed equities linked to thermal coal at risk of being devalued.
Commercial banks rely on these key loans from the Bank of England to maintain liquidity and ensure smooth operations, typically requiring collateral in the form of bonds to guarantee repayment. By no longer accepting thermal coal-linked bonds, the Bank of England is signalling that it views these assets as increasingly risky on its balance sheet. The central bank has explicitly stated that it will apply discounts to the value of bonds in other relevant sectors, including oil and gas, to safeguard its financial stability.
The policy's impact on commercial banks' balance sheets could be substantial, with some estimates suggesting that UK-listed coal companies may face losses of up to 20% due to reduced access to credit. This development marks a notable shift in the Bank of England's stance, which is now more stringent than policies adopted by many Western counterparts, including the European Central Bank.
Climate advocacy groups have welcomed the decision as a critical victory, with Positive Money describing it as a "strong signal from a central bank" that will compel commercial banks to re-evaluate and potentially reduce their holdings of assets tied to thermal coal. The move comes amidst a complex international landscape, including reports of a US-led backlash against green policies following recent political shifts. However, the Bank of England has proceeded with its more stringent approach, which is set to have far-reaching implications for Britain's financial sector.
The ultimate impact of the policy will depend on the specifics of its design, including how the Bank calculates climate risks and whether exclusions might eventually extend beyond thermal coal to encompass other fossil fuel activities or those linked to deforestation. As the global economy continues to transition towards greener energy sources, this policy shift by the Bank of England represents a significant step towards reducing Britain's carbon footprint and promoting financial stability in the long term.