Banks face penalties and legal action over fossil fuel funding, which could prompt them to strengthen climate action or face reputational risk. Dutch banking group ING is the latest bank to face potential legal action over its funding of fossil fuel developments, with climate-oriented NGO Friends of the Earth planning to take the bank to court over its contribution to global warming. Legal actions against banks could result in reputational damage and penalties. Banks and large companies have committed to the Paris Agreement, but they are facing increasing scrutiny to understand the extent to which their lending and underwriting activities contribute to climate change. European banks have already adapted to meet their commitments, but Morningstar DBRS expects more legal actions against banks in the future. The European Central Bank has warned of higher fines for banks not managing their climate and environmental risks as expected. Banks could face reputational damage if they do not strengthen climate-related risk management practices and accelerate their reduction of fossil fuel financing.
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