Morningstar Sustainalytics has debunked the myth that ESG investments are more expensive for investors, a common assumption due to the specialised ESG data, research, and expertise involved.
A new report from Morningstar Sustainalytics compared the costs of ESG funds in Europe to their conventional peers across six popular categories, and examined how these costs have evolved over the past decade by investment style.
“Investors have been led to believe that ESG-focused funds are more expensive than conventional funds,” said Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics. “While there is undoubtedly a wide range of ESG strategies with various price tags out there, we found that, on average, ESG funds don’t charge more than non-ESG funds. This is mainly due to the proliferation of new products and growing competition in the ESG space in recent years.”
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Key takeaways from the report included that ESG funds are generally not more expensive than their conventional peers. The average asset-weighted cost for ESG funds in the six studied categories is 0.83%, compared to 0.90% for conventional funds. A decade ago, these costs were 1.55% and 1.32%, respectively. This decline was attributed to the increasing number of new strategies and heightened competition in the ESG sector.
The report also found that active ESG funds often have lower costs than their conventional counterparts in five of the six categories studied. On the other hand, passive ESG funds tend to match the cost of non-ESG equivalents in four categories, with emerging markets being the only exception, where passive ESG funds are slightly more expensive by an average of 0.05%.
Furthermore, new active ESG funds launched in recent years typically charge lower fees than new non-ESG funds, though this is not always true for new passive ESG funds. Additionally, most rebranded ESG funds have either maintained or reduced their costs post-rebranding. In 2021, a significant year for rebranding, nearly 60% of rebranded ESG funds either reduced or kept their costs unchanged.
Here’s the full report: https://74n5c4m7.r.eu-west-1.awstrack.me/L0/https:%2F%2Fwww-preview.morningstar.com%2Flp%2Fesg-fund-fees/1/0102019048b961f8-1a91d9db-1b8b-414d-9e71-d1728278b543-000000/Kyr86njYfOGb-Hcw7yRKPq2qCk0=379
