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The Bank of England (BoE) has changed its collateral framework to account for climate-related risks in a move similar to that taken by the European Central Bank (ECB).
The BoE said bonds issued by companies active in coal mining would not be eligible as collateral, consistent with its previous corporate bond purchase scheme. It will also introduce new corporate bond haircuts from 31 October in sectors exposed to risks from the transition to a green economy.
A central bank’s collateral framework incorporates the rules that determine which assets banks can use as guarantees when borrowing, and under what conditions.
“Issuers can be exposed to potential financial risks connected to the adjustment of the economy towards net zero. To reflect this, the bank will apply haircut add-ons to bonds from issuers in relevant sectors as needed to protect the bank against financial risks,” the BoE said in a notice.
The ECB added a climate factor into its collateral framework to better manage financial risk from climate change. Eligible assets are determined by EU national central banks under criteria set out by the Eurosystem.
Climate stress tests show that financial assets, including those accepted as collateral, can be affected by climate change. That means if a financial institution defaults as a result of climate change, it could lead to financial losses for the wider Eurosystem. The ECB first announced its intention to green its collateral framework in 2021 but delayed the changes in July 2024.
Campaigners have called for the ECB’s measures to go further and apply exclusions to the most environmentally harmful assets as the BoE is doing with coal mining.
Ellie McLaughlin, senior policy and advocacy manager at advocacy group Positive Money, welcomed the move by the BoE.
“It’s particularly significant that the bank will exclude eligibility for sectors particularly exposed to climate-related transition risks, which sets an important precedent,” she said.
“However, the effectiveness of the measures will depend upon their design. We’ve yet to see how the bank will calculate haircuts to account for climate risks, and exclusions should extend beyond thermal coal to cover all ‘always harmful’ activities”.
David Barmes, senior policy fellow at the Centre for Economic Transition Expertise at the London School of Economics, noted that the BoE had already applied climate-related measures to the mortgages that make up most of the collateral pledged by counterparties.
“While corporate bonds are scarcely pledged as collateral for the time being, this update sends a positive signal that the Bank is adopting a precautionary approach to climate risks as it transitions to its new operating framework,” Barmes said.
This page was last updated June 16, 2026
Written by
Emma Thomasson is a British journalist, consultant and trainer based in Berlin. She is an expert in economics, politics, business and technology. She previously worked for Reuters as a correspondent and bureau chief in Germany, Switzerland, the Netherlands, South Africa and the UK.
