The earliest signs of this type of investment date back to the 18th century, when the Methodists—a Protestant Christian group—refused to engage in the slave trade, smuggling, and conspicuous consumption, and refused to invest in tobacco and liquor manufacturers. By the 1960s, the concept of Socially Responsible Investing began to gain traction thanks to opponents of the Vietnam War and apartheid in South Africa, who demanded that investments not be made in defense contractors or the slave trade, leading to significant institutional and legislative changes. In 1984, following the Chernobyl disaster and the nuclear accident at Three Mile Island, the first organizations dedicated to environmental sustainability were established. Starting in the 1990s, the first stock market indices were launched that included “responsible” and/or “sustainable” companies. Finally, one of the events that marked a turning point was the UN’s initiative to define the previously ambiguous concept and standardize it through the Principles for Responsible Investment (PRI). Since this turning point, responsible and impact investing has seen a sharp rise, especially after the subprime crisis. This trend then gained widespread momentum in 2015 with the UN’s Sustainable Development Goals (SDGs) initiative for 2030, which calls on companies to take a leading role in ensuring the planet’s sustainability.

It is important to distinguish between the concepts of responsible investment and impact investing, which are often confused. The UN defines responsible investment as a strategy and practice for incorporating environmental, social, and corporate governance (ESG) factors into investment decisions and active ownership. It notes that ignoring these factors means ignoring risks and opportunities that have a significant effect on returns. On the other hand, the Global Impact Investing Network (GIIN) considers an investment to be an impact investment when it generates a positive social and/or environmental impact on people and/or the planet; generates a financial return; has the intention and objective of achieving social and/or environmental impact; and there is measurable evidence of the value or impact created. While the two may agree on many aspects, they differ primarily in the intention to generate and measure positive impacts, rather than simply incorporating ESG factors into investments.

In the world of investing, there is considerable uncertainty regarding the benefits and the level of returns offered by these types of initiatives. The first benefit we believe is important to highlight is the regulatory aspect. Since the subprime crisis, regulation has increased significantly—a trend that was further driven starting in 2015 when the UN adopted the SDGs and many countries committed to and aligned themselves with them. Therefore, it is important for companies to stay ahead of the curve and commit to these regulations so they do not have to adapt as they are enacted. Being a proactive rather than a reactive player can lead to significant benefits and competitive advantages.

Second, the fiduciary role of companies is no longer solely financial; it must also encompass environmental and social aspects. There is greater demand and pressure from stakeholders to include ESG factors in corporate strategies. According to Morgan Stanley Capital International (MSCI), best practices in corporate governance lead to higher productivity, greater ability to attract talent, lower turnover, better risk management, and a stronger market reputation. In today’s world, where governments, political parties, and large companies offer almost no representation, people are placing greater demands on companies and seeking meaning and purpose through them—which can be a significant opportunity to set companies apart and create more value.

Finally, and one of the most important aspects to consider, is that according to MSCI, there is a positive correlation between incorporating ESG factors and the financial returns of companies that do so. Companies with high ESG ratings are more competitive, generate abnormal returns, and have lower idiosyncratic and systematic risk—that is, lower company-specific risks, lower earnings volatility, lower beta, and a lower cost of capital.

Responsible investing is becoming increasingly popular around the world, particularly due to the need to reduce social inequalities and achieve global carbon neutrality. That is why we believe it is important to consider the benefits it brings to people, the environment, and businesses alike.

P.S.: We recommend the book *IMPACT: Reshaping Capitalism to Drive Real Change* by Ronald Cohen.

Sources: Preqin, MSCI, UNPRI, GIIN, ACAFI, CMF, and the Santiago Stock Exchange.