Bank of England to stop accepting bonds linked to coal for key loans | Bank of England

Climate campaigners have claimed victory after the Bank of England said it would no longer accept bonds linked to one of the most polluting industries on the planet for crucial lending arrangements.

The ban, which took effect in October, marks a new crackdown on thermal coal, which is burned to generate electricity in power plants and has long been a target of green policy activists.

The bank’s new policy suggests that thermal coal-linked bonds are now too risky to feature on the balance sheet, as an international shift from dirty fossil fuels to greener energy could result in wiping out the value of these bonds.

“This is a strong signal from both the central bank and the market,” Ellie McLaughlin, senior policy and advocacy manager at campaign group Positive Money, told the Guardian.

Earlier this summer, the Bank of England quietly announced that it would not allow commercial banks to use thermal coal-linked bonds as “collateral” when they borrow from the central bank.

The central bank regularly grants loans to commercial banks such as Barclays, Lloyds, NatWest and HSBC to ensure they can process transactions and keep operations running smoothly. These commercial banks are required to provide collateral as collateral, usually in the form of bonds; This means they will be held by the central bank if they cannot repay their loans.

Nearly 150 of the world’s largest financial companies already have some restrictions on how they do business with the thermal coal industry, according to figures published last September by Paris-based non-profit Reclaim Finance.

But activists hope the new policy will force commercial banks to reconsider keeping assets linked to thermal coal, one of the most polluting fossil fuels on the planet, on their balance sheets.

The Bank of England announced policy statement He said thermal coal companies “may be exposed to potential financial risks associated with the economy adjusting towards net zero.” He added that the bank would also discount the value of bonds in other relevant sectors “in order to protect the Bank against financial risks.”

The policy is much stricter than those currently adopted by most of its Western peers, including the European Central Bank. But the Bank of England made its announcement without much fanfare, quietly publishing the policy on its website in early June.

“The Bank of England has been much less vocal about this issue and wider climate work in recent years for a variety of reasons,” McLaughlin said.

It comes amid a US-led backlash against green policies that has forced most financial companies to backtrack on climate targets since Donald Trump returned to the White House. “This makes the environment they operate in much more difficult,” McLaughlin added.

But how effective the Bank of England’s policy SDS will be will depend on its design.

“We have yet to see how the Bank will calculate cuts to account for climate risks, and exemptions should be extended beyond thermal coal to all activities that are ‘always harmful,’” McLaughlin said, including the expansion of fossil fuels or deforestation.

“This is quite important, but there are certainly many areas where the Bank can go further.”