Industry Updates

ESG passive fund fees ‘on a par’ with non-ESG equivalents

Passive investors do not pay a premium for ESG

Theo Andrew


Passive ESG fund fees are “on a par” with non-ESG counterparts, busting a long-established myth that investors pay a premium for investing sustainably, according to Morningstar research.

The report, titled Myth busting: ESG funds aren’t more expensive than non-ESG funds, found passive ESG fund fees were the same as non-ESG funds in four out of six categories, on an asset-weighted average basis.

At the end of 2024, the asset-weighted average of ESG and non-ESG passive funds was around 0.16%.

The report analysed six categories, comprising global large caps, US large caps, European large caps, global emerging market equity, euro corporate bonds and ‘other’ bonds.

Emerging markets is the only category where passive ESG funds ha higher costs, with average fees of 0.19% versus 0.24% for passive ESG funds.

Meanwhile, passive ESG funds in the global large-cap equity category are cheaper at 0.16% on average, versus 0.21% for non-ESG passive funds.

The results are even more favourable for ESG funds using simple averages, coming in cheaper than non-ESG passive funds in all six categories.

Despite this, recently launched passive ESG funds tend to charge more than new non-ESG counterparts on an asset-weighted average in five out of six categories.

New passive funds in the global large-cap blend equity category were the only ones to incur lower costs than their new conventional peers, at 0.15% and 0.17%, respectively.

“This suggests that most of the passive money has been flowing into the cheapest new funds and share classes, which tend to be non-ESG plain-vanilla ETFs,” Morningstar said.

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