British Banks Criticised for Relying on Flawed Net Zero Study

Three of Britain’s leading banks, Lloyds, NatWest, and HSBC, are facing sharp criticism following revelations that they leaned on a discredited study to inform decisions related to climate risk and net zero strategy. The research in question, integral to guidance from the Network for Greening the Financial System, was recently retracted after economists uncovered significant data errors that exaggerated the economic consequences of climate change.

The flawed study originated from the Potsdam Institute for Climate Impact Research and had forecast dire economic declines; it projected losses of $38 trillion annually by 2049 and a 62 percent reduction in global economic output by 2100 should carbon emissions remain unchecked. A single data issue regarding Uzbekistan was found to have skewed the study’s outcomes; removing this anomaly showed a reduced predicted output decline of 23 percent by 2100.

Despite the paper’s retraction this month and warnings from the NGFS about its inaccuracies, the three banks confirmed reliance on NGFS scenarios to identify sectors most vulnerable to climate-related risks. Reports from Lloyds and NatWest indicate that these scenarios helped shape assessments across commercial lending portfolios, while HSBC noted similar use in its climate strategy reports.

This development has reignited debate about the role banks should play in advancing environmental targets. Critics argue financial institutions have drifted from their principal business of lending and financial stewardship, venturing into regulatory territories amid limited climate expertise. Political voices have called for a reassessment and reduction of regulation that ties lending decisions to environmental models, particularly in light of the errors now exposed.

Central banks and supervisory coalitions like the NGFS, whose membership spans 150 institutions across 90 countries, have also come under scrutiny for distributing the disputed research. The Bank of England previously acknowledged that climate forecasts increasingly influence lending criteria, motivated by ambitions to align with net zero goals. NGFS officials emphasise that their scenarios serve as accessible modelling tools, not definitive forecasts, cautioning users against overreliance amid ongoing academic disputes.

Amid the fallout, there remains uncertainty about whether banks such as Lloyds, NatWest, and HSBC will revise their climate-related analyses and risk assessments. For now, the spotlight remains on governance, accuracy, and the future of environmental risk management in British banking.