The first signs of this type of investment date back to the 18th century when Methodists, a group of Protestant Christians, refused to engage in the slave trade, smuggling, conspicuous consumption and investment in tobacco and liquor manufacturing. By the 1960s, the concept of Socially Responsible Investment began to be mentioned thanks to opponents of the Vietnam War and Apartheid in South Africa, who demanded that no investments be made in defense contractors or the slave trade, generating important institutional and legislative changes. In 1984, after the Chernobyl natural disaster and the nuclear explosion at Three Mile Island, the first organizations seeking environmental sustainability were created. Starting in the 1990s, the first stock market indexes were launched that included "responsible" and/or "sustainable" companies. Finally, and one of the events that marked a before and after, was the UN initiative to define the concept, which was quite ambiguous, and standardize it with the Principles for Responsible Investment (PRI). Since this turning point, responsible and impact investment has had a strong rise, especially after the subprime crisis, which then in 2015 is massified with the UN initiative of the Sustainable Development Goals (SDGs) for 2030, where companies are required to take a leading role in the sustainability of the planet.

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

In the investment world, there is considerable uncertainty about the benefits and the level of returns from this type of initiative. The first benefit that we feel it is important to highlight is the regulatory issue. Since the subprime crisis, regulation has increased significantly, which in turn was encouraged since 2015 when the UN declared the SDGs and many countries adhered and aligned with these. Therefore, it is important for companies to anticipate and engage with these regulations so that they do not have to adjust as they are enacted. Being a proactive rather than reactive player can lead to significant benefits and competitive advantages.

Secondly, the fiduciary role of companies is no longer only financial, but must also include environmental and social aspects. There is a greater demand and requirement from stakeholders to include ESG aspects in their strategies. According to Morgan Stanley Capital International (MSCI), better corporate governance practices generate higher productivity, greater talent attraction, lower turnover, better risk management and better market reputation. In the times we live in, where there is almost no representation by governments, political parties and large companies, there are greater demands and search for meaning/purpose by people through companies, which can be an important opportunity to make a difference 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 including ESG factors and the financial return of the companies that include them. Companies with high ESG ratings are more competitive, generate abnormal returns and have lower idiosyncratic and systematic risk, i.e., lower company-specific risks and lower earnings volatility, lower beta and lower cost of capital.

Responsible investment is becoming increasingly popular around the world, mainly due to the need to reduce inequalities in society and generate carbon neutrality in the world. This is why we believe it is important to take into consideration the benefits it brings to people, the environment and companies.

PS: We recommend the book "IMPACT: Reshaping Capitalism to Drive Real Change", by Ronald Cohen.

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