Bank of England to stop accepting thermal coal bonds as loan collateral
8 reported2 unconfirmed
The Bank of England has announced it will no longer accept bonds linked to thermal coal for key loan arrangements, a move climate campaigners have declared a victory. The ban takes effect in October and targets thermal coal, which is burned in power plants to create electricity. The central bank stated that thermal coal companies can be exposed to financial risks connected to the adjustment of the economy toward net zero, and that it would discount the value of bonds in other relevant sectors to protect against financial risks. The policy was quietly released on the Bank’s website in early June, with little public fanfare. Ellie McLaughlin, a senior policy and advocacy manager at Positive Money, told the Guardian the move is a strong signal from a central bank and to the market. The policy is stricter than those of most western counterparts, including the European Central Bank, but its effectiveness will depend on how the Bank calculates haircuts for climate risks. McLaughlin noted that exclusions should extend beyond thermal coal to cover all “always harmful” activities, including fossil fuel expansion or deforestation.
What’s reported
The Bank of England will stop accepting bonds linked to thermal coal as collateral for loans to commercial banks.
The ban comes into force in October.
Thermal coal is burned in power plants to create electricity.
The Bank of England said thermal coal companies can be exposed to financial risks connected to the adjustment of the economy toward net zero.
The policy was quietly released on the Bank’s website in early June.
About 150 of the world’s largest financial companies already have restrictions on business with the thermal coal industry, according to Reclaim Finance data from last September.
The policy is stricter than those of the European Central Bank and most western counterparts.
Ellie McLaughlin of Positive Money called it a strong signal but said the Bank could go further.
Open questions
How the Bank of England will calculate haircuts to account for climate risks.
Whether the policy will effectively force commercial banks to rethink holding thermal coal assets.
Key figures
Ellie McLaughlin, senior policy and advocacy manager at Positive Money
Reclaim Finance, Paris-based non-profit
Sources: The Guardian
