Bank of England bans thermal coal bonds

July 20, 2026

The Bank of England has introduced a significant policy change by announcing it will no longer accept bonds linked to the thermal coal industry as collateral in its lending operations. The measure, which takes effect in October, marks one of the strongest climate-related financial decisions made by a major central bank and reinforces growing concerns about the long-term risks associated with coal investments.

Thermal coal, widely used for electricity generation, is considered one of the most carbon-intensive fossil fuels. As governments and businesses accelerate the transition toward cleaner energy sources, assets connected to the coal sector are increasingly viewed as financially vulnerable.

Under the updated framework, commercial banks will no longer be able to use thermal coal-backed bonds when borrowing from the Bank of England. Financial institutions such as Barclays, HSBC, Lloyds, and NatWest routinely secure central bank loans with high-quality collateral, typically government or corporate bonds. From October onward, securities tied to thermal coal companies will no longer qualify.

Climate finance advocates have welcomed the decision, describing it as an important signal to global financial markets. Ellie McLaughlin, Senior Policy and Advocacy Manager at Positive Money, said the move demonstrates that the Bank of England recognizes the financial risks created by the global shift to a low-carbon economy.

The central bank's policy reflects concerns that companies heavily dependent on thermal coal could experience declining asset values as countries pursue net-zero emissions targets. According to the Bank, these businesses face growing transition risks that may affect the reliability of their financial assets. To reduce its own exposure, the Bank also plans to apply stricter valuation discounts to bonds issued by other sectors facing elevated climate-related financial risks.

The policy places the Bank of England ahead of many other major central banks in integrating climate considerations into financial risk management. Analysts note that its approach currently exceeds measures adopted by institutions such as the European Central Bank, although the announcement itself was released with relatively little public attention.

The decision arrives during a period of increased political resistance to climate policies, particularly following shifts in U.S. environmental priorities. This changing landscape has prompted many financial institutions to scale back or revise their climate commitments, making the Bank of England's tougher stance particularly notable.

Industry data published by Reclaim Finance indicates that roughly 150 of the world's largest financial institutions already impose some form of restriction on financing or investing in the thermal coal sector. Campaigners hope the Bank's latest policy will encourage commercial banks to further reduce their exposure to coal-related assets and accelerate investment in cleaner industries.

Despite welcoming the announcement, environmental organizations argue that additional measures are needed. Campaigners are calling on the Bank to extend restrictions beyond thermal coal to include all activities considered environmentally harmful, including fossil fuel expansion projects and deforestation-linked industries. They also stress that the effectiveness of the new framework will depend on how climate-related risks are reflected in bond valuations.

While experts view the policy as a meaningful milestone for sustainable finance, many believe it should represent the beginning rather than the end of stronger climate risk integration across the global financial system. As central banks increasingly recognize the economic consequences of climate change, decisions like this could influence investment strategies and accelerate the transition toward a cleaner, more resilient economy.