The Bank of England announced it will stop accepting bonds linked to thermal coal for key loan arrangements starting in October. This decision marks a significant move against one of the most polluting industries, as the central bank aims to mitigate financial risks associated with climate change. The policy change indicates that bonds tied to thermal coal are now considered too risky for the Bank's balance sheet, reflecting a broader global shift towards greener energy sources.
Key Details
The new policy follows the Bank's earlier decision to prevent commercial banks from using thermal coal bonds as collateral for loans. This measure is intended to ensure that banks, including major institutions like Barclays and HSBC, do not hold assets that could lose value due to the transition to a net-zero economy. Ellie McLaughlin, a senior policy manager at Positive Money, described the ban as a
strong signal from a central bank, and to the market as well.
Background
According to a report from Reclaim Finance, approximately 150 of the world's largest financial companies have already implemented some form of restrictions on their dealings with the thermal coal sector. Activists believe that the Bank of England's new policy will encourage commercial banks to reassess their investments in coal-related assets, which are among the most environmentally damaging.
The ban on coal-linked bonds is likely to affect the financial sector, particularly banks that have exposure to thermal coal assets. This could lead to increased scrutiny and potential divestment from coal-related investments, impacting the broader energy market. Investors will watch for the implementation of the new policy in October and any subsequent shifts in bank lending practices related to fossil fuels.