Are Sustainable Funds More Expensive?

Monday, March 20, 2017

Socially responsible investing, also known as sustainable, impact, or ESG (environmental, social, and governance) investing, has been steadily growing in popularity in recent years. A year ago, we launched the Morningstar Sustainability Rating for funds to help investors measure to what extent any mutual fund’s portfolio aligns with ESG principles.

One concern that frequently arises among those new to this type of investing is performance, specifically whether investors have to sacrifice returns if they invest sustainably. Many people have assumed that the answer must be yes, but in fact there is no good evidence of any significant performance difference between sustainable and nonsustainable mutual funds, as Morningstar director of sustainability research Jon Hale has noted in a couple of recent studies. Similarly, an article from 2012 surveys the academic literature showing no significant performance penalty for sustainable funds.

 Another concern that sometimes surfaces is price. Are sustainable mutual funds more expensive as a group than nonsustainable funds? Do investors have to pay up for ESG screening? This question hasn’t been investigated as extensively as the performance one, so we examined it in a couple of different ways using Morningstar data.

Source: Morning Star (link opens in a new window)

Impact Assessment, Investing
corporate social responsibility, ESG, impact investing