Articles
DOI DOI: 10.62441/actainnovations.v63i.1195

LIABILITY OF DIGITAL BANKS IN ENVIRONMENTAL DAMAGE: REDEFINING THE “LENDER LIABILITY” DOCTRINE IN THE DIGITAL AGE

Nguyen Xuan Bang, PhD1
  1. 1 Faculty of Law, Hutech University, HCM city, VietNam.

Abstract

This study examines how the doctrine of lender liability should be redefined in response to the rise of digital banks and data-driven lending. Traditional lender liability doctrine has generally protected banks from environmental liability where they act only as creditors and do not participate in the management of a borrower’s polluting activity. This approach was built on the assumption that lenders are financially connected to borrowers but remain operationally distant from environmental harm. In the digital banking context, that assumption is increasingly incomplete. Digital banks and digitally transformed banks use algorithmic credit scoring, alternative data, real-time transaction monitoring, environmental risk models, open-banking interfaces, automated covenants, and financed-emissions accounting. These tools may increase a lender’s knowledge of environmental risk, strengthen its ability to monitor borrowers, and create practical leverage over environmentally harmful activities. The study adopts a systematic literature review combined with doctrinal legal analysis. The review design is structured using an adapted PICO framework and reported through a PRISMA 2020 flow process. The search identified 162 records, from which 44 studies and institutional sources were included in the final systematic review and doctrinal analysis. The findings show that existing lender liability doctrine is too narrow when it treats banks as passive creditors despite their advanced data capacities and contractual influence. However, strict liability for all financed environmental damage would be excessive and could reduce access to transition finance. The article therefore proposes a calibrated digital lender responsibility framework based on six elements: knowledge, foreseeability, leverage, control, causal contribution, and reasonable digital environmental due diligence. Liability should arise only where a digital bank knew or should have known of serious environmental risk, had practical capacity to influence the borrower, failed to use reasonable digital due diligence, and materially contributed to the continuation or expansion of environmental harm.

How to Cite

Bang, PhD, N. X. (2026). LIABILITY OF DIGITAL BANKS IN ENVIRONMENTAL DAMAGE: REDEFINING THE “LENDER LIABILITY” DOCTRINE IN THE DIGITAL AGE. ACTA INNOVATIONS, 63, 971–989. https://doi.org/10.62441/actainnovations.v63i.1195
Endnote/Zotero/Mendeley (RIS) BibTeX

References

  1. 1. Ameli, N., Dessens, O., Winning, M., Cronin, J., Chenet, H., Drummond, P., Calzadilla, A., Anandarajah, G., & Grubb, M. (2021). Higher cost of finance exacerbates a climate investment trap in developing economies. Nature Communications, 12, 4046. https://doi.org/10.1038/s41467-021-24305-3
  2. 2. Bartlett, R., Morse, A., Stanton, R., & Wallace, N. (2022). Consumer-lending discrimination in the FinTech era. Journal of Financial Economics, 143(1), 30–56. https://doi.org/10.1016/j.jfineco.2021.05.047
  3. 3. Basel Committee on Banking Supervision. (2022). Principles for the effective management and supervision of climate-related financial risks. Bank for International Settlements. https://www.bis.org/bcbs/publ/d532.htm
  4. 4. Battiston, S., Mandel, A., Monasterolo, I., Schütze, F., & Visentin, G. (2017). A climate stress-test of the financial system. Nature Climate Change, 7, 283–288. https://doi.org/10.1038/nclimate3255
  5. 5. Bellon, A. (2026). Fresh start or fresh water: The impact of environmental lender liability (CES Working Paper No. 26-05). U.S. Census Bureau. https://www.census.gov/library/working-papers/2026/adrm/CES-WP-26-05.html
  6. 6. Berg, T., Burg, V., Gombović, A., & Puri, M. (2020). On the rise of FinTechs: Credit scoring using digital footprints. The Review of Financial Studies, 33(7), 2845–2897. https://doi.org/10.1093/rfs/hhz099
  7. 7. Bolton, P., & Kacperczyk, M. (2021). Do investors care about carbon risk? Journal of Financial Economics, 142(2), 517–549. https://doi.org/10.1016/j.jfineco.2021.05.008
  8. 8. Bressan, S. (2025). Does the environmental impact of banks affect their financial performance and valuation? Journal of Banking Regulation, 26, 214–235. https://doi.org/10.1057/s41261-024-00257-8
  9. 9. Buchak, G., Matvos, G., Piskorski, T., & Seru, A. (2018). Fintech, regulatory arbitrage, and the rise of shadow banks. Journal of Financial Economics, 130(3), 453–483. https://doi.org/10.1016/j.jfineco.2018.03.011
  10. 10. Cornelli, G., Frost, J., Gambacorta, L., Rau, P. R., Wardrop, R., & Ziegler, T. (2023). Fintech and big tech credit: Drivers of the growth of digital lending. Journal of International Money and Finance, 131, 102709. https://doi.org/10.1016/j.jimonfin.2022.102709
  11. 11. Dempere, J., Alamash, E., & Mattos, P. (2024). Unveiling the truth: Greenwashing in sustainable finance. Frontiers in Sustainability, 5, 1362051. https://doi.org/10.3389/frsus.2024.1362051
  12. 12. Equator Principles Association. (2020). The Equator Principles EP4. https://equator-principles.com/app/uploads/The-Equator-Principles_EP4_July2020.pdf
  13. 13. Erel, I., & Liebersohn, J. (2022). Can FinTech reduce disparities in access to finance? Evidence from the Paycheck Protection Program. Journal of Financial Economics, 146(1), 90–118. https://doi.org/10.1016/j.jfineco.2022.05.004
  14. 14. European Banking Authority. (2021). EBA report on management and supervision of ESG risks for credit institutions and investment firms. https://www.eba.europa.eu/eba-publishes-its-report-management-and-supervision-esg-risks-credit-institutions-and-investment
  15. 15. European Banking Authority. (2024). Final report on greenwashing monitoring and supervision. https://www.eba.europa.eu/publications-and-media/press-releases/eba-publishes-final-report-greenwashing-monitoring-and-supervision
  16. 16. European Central Bank. (2020). Guide on climate-related and environmental risks: Supervisory expectations relating to risk management and disclosure. https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.202011finalguideonclimate-relatedandenvironmentalrisks~58213f6564.en.pdf
  17. 17. European Central Bank. (2022). 2022 climate risk stress test. https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.climate_stress_test_report.20220708~2e3cc0999f.en.pdf
  18. 18. European Union. (2020). Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment. Official Journal of the European Union. https://eur-lex.europa.eu/eli/reg/2020/852/oj/eng
  19. 19. European Union. (2022). Directive (EU) 2022/2464 as regards corporate sustainability reporting. Official Journal of the European Union. https://eur-lex.europa.eu/eli/dir/2022/2464/oj/eng
  20. 20. European Union. (2024). Directive (EU) 2024/1760 on corporate sustainability due diligence. Official Journal of the European Union. https://eur-lex.europa.eu/eli/dir/2024/1760/oj
  21. 21. Flammer, C. (2021). Corporate green bonds. Journal of Financial Economics, 142(2), 499–516. https://doi.org/10.1016/j.jfineco.2021.01.010
  22. 22. Fuster, A., Goldsmith-Pinkham, P., Ramadorai, T., & Walther, A. (2022). Predictably unequal? The effects of machine learning on credit markets. The Journal of Finance, 77(1), 5–47. https://doi.org/10.1111/jofi.13090
  23. 23. Gomber, P., Koch, J. A., & Siering, M. (2018). Digital finance and FinTech: Current research and future research directions. Business & Information Systems Engineering, 60, 537–580. https://doi.org/10.1007/s12599-017-0464-6
  24. 24. Hooley, R. (2001). Lender liability for environmental damage. The Cambridge Law Journal, 60(2), 405–444. https://www.cambridge.org/core/journals/cambridge-law-journal/article/lender-liability-for-environmental-damage/1939421D8CA4E71E13D7FCF1A1C8CE29
  25. 25. Huang, H. H., Kerstein, J., Wang, C., & Wu, F. (2022). Firm climate risk, risk management, and bank loan financing. Strategic Management Journal, 43(13), 2849–2880. https://doi.org/10.1002/smj.3437
  26. 26. Ilhan, E., Sautner, Z., & Vilkov, G. (2021). Carbon tail risk. The Review of Financial Studies, 34(3), 1540–1571. https://doi.org/10.1093/rfs/hhaa071
  27. 27. International Energy Agency. (2021). Net zero by 2050: A roadmap for the global energy sector. https://www.iea.org/reports/net-zero-by-2050
  28. 28. Intergovernmental Panel on Climate Change. (2023). Climate change 2023: Synthesis report. https://www.ipcc.ch/report/ar6/syr/
  29. 29. Krueger, P., Sautner, Z., & Starks, L. T. (2020). The importance of climate risks for institutional investors. The Review of Financial Studies, 33(3), 1067–1111. https://doi.org/10.1093/rfs/hhz137
  30. 30. Langenbucher, K. (2021). Responsible AI-based credit scoring: Regulating algorithmic credit scoring in the USA, Europe and China. European Business Organization Law Review, 22, 363–393. https://doi.org/10.1007/s40804-021-00216-2
  31. 31. Network for Greening the Financial System. (2021). Climate-related litigation: Raising awareness about a growing source of risk. https://www.ngfs.net/en/climate-related-litigation-raising-awareness-about-growing-source-risk
  32. 32. Network for Greening the Financial System. (2023). Climate-related litigation: Recent trends and developments. https://www.ngfs.net/sites/default/files/medias/documents/ngfs_report-on-climate-related-litigation-recent-trends-and-developments.pdf
  33. 33. OECD. (2019). Due diligence for responsible corporate lending and securities underwriting. https://mneguidelines.oecd.org/Due-Diligence-for-Responsible-Corporate-Lending-and-Securities-Underwriting.pdf
  34. 34. OECD. (2023). OECD Guidelines for Multinational Enterprises on Responsible Business Conduct. https://www.oecd.org/publications/oecd-guidelines-for-multinational-enterprises-on-responsible-business-conduct-81f92357-en.htm
  35. 35. Page, M. J., McKenzie, J. E., Bossuyt, P. M., Boutron, I., Hoffmann, T. C., Mulrow, C. D., Shamseer, L., Tetzlaff, J. M., Akl, E. A., Brennan, S. E., Chou, R., Glanville, J., Grimshaw, J. M., Hróbjartsson, A., Lalu, M. M., Li, T., Loder, E. W., Mayo-Wilson, E., McDonald, S., ... Moher, D. (2021). The PRISMA 2020 statement: An updated guideline for reporting systematic reviews. BMJ, 372, n71. https://doi.org/10.1136/bmj.n71
  36. 36. Partnership for Carbon Accounting Financials. (2022). The Global GHG Accounting and Reporting Standard for the Financial Industry. https://carbonaccountingfinancials.com/standard
  37. 37. Plato-Shinar, R. (2011). Lenders’ liability for environmental damages in the framework of project finance. Law and Financial Markets Review, 5(6), 414–427. https://doi.org/10.5235/175214411798411112
  38. 38. Sautner, Z., Van Lent, L., Vilkov, G., & Zhang, R. (2023). Firm-level climate change exposure. The Journal of Finance, 78(3), 1449–1498. https://doi.org/10.1111/jofi.13219
  39. 39. Seltzer, L. H., Starks, L. T., & Zhu, Q. (2022). Climate regulatory risk and corporate bonds (NBER Working Paper No. 29994). National Bureau of Economic Research. https://doi.org/10.3386/w29994
  40. 40. Snyder, H. (2019). Literature review as a research methodology: An overview and guidelines. Journal of Business Research, 104, 333–339. https://doi.org/10.1016/j.jbusres.2019.07.039
  41. 41. Solana, J. (2020). Climate change litigation as financial risk. Green Finance, 2(4), 344–372. https://doi.org/10.3934/GF.2020019
  42. 42. Task Force on Climate-related Financial Disclosures. (2017). Recommendations of the Task Force on Climate-related Financial Disclosures. https://www.fsb-tcfd.org/recommendations/
  43. 43. Taskforce on Nature-related Financial Disclosures. (2023). Recommendations of the Taskforce on Nature-related Financial Disclosures. https://tnfd.global/publication/recommendations-of-the-taskforce-on-nature-related-financial-disclosures/
  44. 44. Tranfield, D., Denyer, D., & Smart, P. (2003). Towards a methodology for developing evidence-informed management knowledge by means of systematic review. British Journal of Management, 14(3), 207–222. https://doi.org/10.1111/1467-8551.00375
  45. 45. United Nations Environment Programme. (2023). Global climate litigation report: 2023 status review. https://www.unep.org/resources/report/global-climate-litigation-report-2023-status-review
  46. 46. United Nations Environment Programme Finance Initiative. (2019). Principles for Responsible Banking. https://www.unepfi.org/banking/bankingprinciples/
  47. 47. United Nations Human Rights Office of the High Commissioner. (2011). Guiding Principles on Business and Human Rights. https://www.ohchr.org/sites/default/files/documents/publications/guidingprinciplesbusinesshr_en.pdf
  48. 48. U.S. Environmental Protection Agency. (2026a, April 10). Basic information on enforcement. https://www.epa.gov/enforcement/basic-information-enforcement
  49. 49. U.S. Environmental Protection Agency. (2026b, May 18). Residential property owners and lenders. https://www.epa.gov/enforcement/residential-property-owners-and-lenders
  50. 50. World Bank. (2025). Responsible digital credit: Regulatory and supervisory considerations. https://documents1.worldbank.org/curated/en/099072425135514500/pdf/P181316-72eed651-b7c2-4137-a1f0-a00c3e1efede.pdf
  51. 51. Zerbib, O. D. (2019). The effect of pro-environmental preferences on bond prices: Evidence from green bonds. Journal of Banking & Finance, 98, 39–60. https://doi.org/10.1016/j.jbankfin.2018.10.012
  52. 52. Zhang, X., Wang, Z., Zhong, X., Yang, S., & Siddik, A. B. (2022). Do green banking activities improve the banks’ environmental performance? The mediating effect of green financing. Sustainability, 14(2), 989. https://doi.org/10.3390/su14020989