It’s often assumed that investors must sacrifice profits for purpose, but in 2020 they got both. ESG-focused retail investment funds outperformed non-ESG funds, and at a lower cost, according to research from the European Securities and Markets Authority (ESMA).
The regulator said that ESG funds “were overall cheaper than non-ESG peers, while their performance reflected the strong performance of specific sectors since the Covid-19 crisis.”
“Within the ESG fund category, impact funds performed better than other ESG strategies and funds with sustainable investment as [an] objective performed better in net terms… than those promoting environmental or social characteristics despite slightly higher costs,” it also found.
For 2020, actively managed equity and bond funds generally outperformed passive funds and ETFs, the report also noted — yet active funds continued to underperform passive products over a 10-year time horizon.
Additionally, the report found that, while fund costs have come down in certain markets over the past 10 years, overall there has been “limited progress in funds becoming more affordable.”
ESMA noted that retail investors continue to pay higher investment costs than pro investors.
“Retail clients paid on average around 40% more than institutional investors across asset classes,” it said.