Myth 1: It’s more expensive
The most common refrain voiced by naysayers when it comes to sustainable investing is the fees are much higher and it doesn’t significantly outperform the rest. That’s a misconception. Morningstar has analysed 4,900 investment funds domiciled in Europe, including 745 sustainable open-ended and exchange-traded funds. Hortense Bioy, director of sustainability research, Europe, Middle East, Africa and Asia-Pacific, at Morningstar, says: “We found in Europe, active environmental, social and governance, or ESG, funds charge lower fees than active non-ESG funds across the vast majority of categories. I would attribute this to the increased competition among ESG funds as their popularity grows.” This was particularly apparent in the categories US large-cap blend equity and Europe large-cap blend equity. In both categories, ESG funds are 30 per cent cheaper on average than their non-ESG counterparts. However, passive ESG funds tend to charge a small premium relative to their plain-vanilla passive peers. “That’s because the latter have cut fees very aggressively in recent years, with funds charging fees as low as 0.05 per cent,” says Bioy. This year ESG funds have seen record inflows spurred by the pandemic. Should global inflows continue to rise, fees are likely to decrease further, as providers vie to attract customers.