Responsible finance as a solution to the Covid-19 crisis
Dr. Thi Hong Van Hoang, associate professor of finance at Montpellier Business School, France, spoke with Efma’s Boris Plantier about the key elements of responsible finance and the role it could play in our current crisis.
How can responsible finance be a solution to the Covid-19 crisis?
From my point of view, responsible finance refers to all financial operations and services which are guided by responsible behavior vis-à-vis individuals, organizations, as well as the environment. In this regard, responsible finance can cover various fields such as microfinance, socially responsible investments, ESG investing, crowdfunding, crowdlending, or more broadly FinTech in which the objective is to make financial services more efficient, accessible, and thus more inclusive.
In the context of the Covid-19 crisis, responsible finance can be a solution because it helps individuals and firms with efficient solutions for financing, insurance, payment, and risk management. For example, microfinance can help people finance their personal and professional projects. In the same vein, crowdfunding and crowdlending help individuals, associations, and firms find financing solutions from a much broader community of investors. On the other hand, solutions proposed by FinTech can help firms develop more efficient ecommerce platforms and contactless payments, for example. As for socially responsible investment and ESG investing, recent studies show that firms which include ESG factors in their strategy tend to be more resilient during the Covid-19 crisis (see for example an article by S&P Global).
Recent reports show that SMEs are considerably weakened by the Covid-19 crisis. How banks can help them?
From my point of view, banks can help SMEs by being more flexible. The flexibility can be a quicker processing of credit requests, a delay of credit payments, a wider offering of payment solutions, an insurance solution to fill the gap of turnover during the lockdown period, or personal support to entrepreneurs who seek to keep their employees. So, there are many ways to help, but to succeed, both banks and SMEs need to be open to find solutions with mutual benefits.
Beyond the crisis, what could be the positive impact of responsible banking?
As demonstrated by numerous academic and professional research studies, responsible behavior is necessary to achieve sustainable growth. Responsible banking means banks with responsible behavior towards people, organizations, the society, and the environment. In this regard, responsible banking would help banks be more resilient during crisis periods. On the other hand, responsible banking will help banks finance the real economy in a more sustainable way by selecting investment projects with positive impacts on society and the environment. Furthermore, responsible banking will also make banks’ stakeholders more engaged in all its activities. It will thus help banks to better overcome new challenges caused by uncertainties.
A recent AMF survey demonstrates that the majority of French people factor sustainable development challenges into their daily lives. What are the main obstacles to the development of a more responsible finance?
I believe that the main obstacle to the development of more responsible finance is the knowledge about responsible finance. I think that it is important to explain what responsible finance means and its impacts on the society and the environment. It is also important to show its benefits, not only in the short term but also in the long term. For example, it is necessary to better explain the ESG indicators to SMEs and show how they can measure and consider it in their activities.