---
title: "Bank of England bars coal-linked bonds from key loans"
author: "Tomás Iglesias"
datePublished: 2026-07-19T05:56:17.000Z
canonical: "https://scramnews.com/post/00tieao0oiilx/bank-of-england-bars-coal-linked-bonds"
---

From 31 October 2026, the [Bank of England](https://www.bankofengland.co.uk/markets/market-notices/2026/june/collateral-eligibility-in-the-smf-11-june-2026) will stop accepting corporate bonds linked to thermal coal mining as collateral in the Sterling Monetary Framework, turning a climate exposure into a funding constraint for banks. Lenders can still own the debt. They will lose one official place to use it when they need cash against eligible assets.

Eligibility is the lever. Coal-linked bonds may keep trading, but they become less useful once they fall out of the BoE’s collateral set.

Under the Sterling Monetary Framework, the Bank sets which assets banks can pledge in its lending facilities. That matters because bonds accepted by the central bank can be mobilised in a liquidity squeeze. Paper outside the framework is harder to use when funding conditions tighten. So the coal decision lands as a market-structure change before it reads as a climate-policy signal.

In its 11 June market notice, the BoE said all eligible corporate bonds would be classified solely as Level B collateral from the same date. More important for bank collateral desks is the carve-out for debt issued by companies linked to thermal coal mining. Those bonds will cease to be eligible collateral for the relevant operations rather than merely attracting a tougher haircut.

BoE officials cast the decision as risk management. Issuers, according to the notice, can face financial risks tied to the shift toward net zero.

> “Issuers can be exposed to potential financial risks connected to the adjustment of the economy towards net zero.”
>
- > Bank of England market notice, 11 June 2026

[Green Central Banking](https://greencentralbanking.com/2026/06/17/boe-climate-risks-collateral-framework/) said climate risk is now being handled inside the collateral framework itself. Banks have until 31 October to review collateral pools, replace affected paper and check whether any coal-linked positions still sit in liquidity buffers. Leaving the rest of the corporate-bond rulebook largely intact makes the coal exclusion more pointed.

That detail matters in repo-style funding. Central-bank collateral rules help shape what dealers and bank treasurers treat as liquid enough to hold. A security that cannot be mobilised at the BoE is still financeable somewhere. It is simply less convenient in a market built around collateral flexibility.

## Why the funding angle matters

[The Guardian reported](https://www.theguardian.com/business/2026/jul/19/bank-of-england-bonds-coal-loans-assets) that the facilities are among the loans commercial banks use when they need to raise cash against collateral. The decision reaches beyond a public rebuke to fossil-fuel finance. If eligibility helps determine what a bank can finance quickly and on predictable terms, losing it can feed back into what treasury desks are willing to hold.

Banks do not need the facility every day. They care that it is there. Keeping the option to turn eligible assets into cash supports liquidity planning and can influence which holdings are easiest to justify.

Campaigners read the move as a message to the wider market as well as to banks. [Ellie McLaughlin](https://www.theguardian.com/business/2026/jul/19/bank-of-england-bonds-coal-loans-assets), senior policy and advocacy manager at [Positive Money](https://scramnews.com/tag/positive-money), told the newspaper the exclusion carried weight because it came from a central bank rather than a private investor screen.

> “It’s a strong signal from a central bank, and to the market as well.”
>
- > Ellie McLaughlin, Positive Money, quoted by The Guardian

[Reclaim Finance](https://scramnews.com/tag/reclaim-finance) counted about 150 large financial companies with some restriction on thermal-coal business, the Guardian said. The BoE’s step is different because it changes access to an official liquidity backstop. That is why the move matters for how coal-linked paper is financed and, at the margin, how comfortably it is held.

A forced sale is not the base case. Institutions instead have notice that one public lender of last resort will not recognise the paper inside a key funding channel after October.

## The precedent for collateral policy

This is narrower than a blanket ban on fossil-fuel exposure and more practical than a climate speech. The precedent is that a central bank can push climate risk through day-to-day funding architecture. Banks now have a clear timetable: by 31 October they need to know which corporate bonds still move cleanly through the BoE’s collateral system and which do not. For the market, the signal is narrow but useful. Once the central bank decides certain coal-linked bonds no longer belong in its collateral set, it changes how easily that risk can move through the funding system.