Europe’s sustainable ETFs often cheaper than traditional peers

Europe, sustainable, ETFs, cheaper, traditionalCharges on sustainable ETFs in Europe are commonly lower than their conventional peers, according to Refinitiv Lipper research.

Average total expense ratios of equity ETFs classified as Article 8 or Article 9 under the EU Sustainable Finance Disclosure Regulation (SFDR) tended to be below those of non-sustainable products.

The EU’s SFDR allows funds that embed ESG criteria into their investment process to categorise themselves as Article 8 or Article 9, with the latter being a stricter classification level.

Data at the end of January 2022 showed sectors including US equity, European equity, and emerging markets were cheaper than non-sustainable rivals. The only sector of equity funds where conventional offerings that do not adhere to sustainability criteria – known as Article 6 in the EU-wide regulations – were cheaper than sustainable-focused funds was global equity.

The narrative was more mixed regarding fixed income ETFs, with the average for all sectors combined being 0.2% for Article 6 and Article 8 funds, with Article 9 products charging a higher average fee of 0.2%.

Laith Khalaf, head of investment analysis at UK platform AJ Bell, said: “It’s not too surprising that [the charges on] sustainable ETFs are not significantly higher than their peers, given the vast amount of money that has flowed into these strategies.

“This is clearly good news for passive sustainable investors, offering them a way to gain responsible exposure to global markets without paying high fees.”

However, Khalaf added: “But more specialist strategies can also be characterised by lumpier [investor] flows, which might make fund groups think twice about cutting costs based on AUM at any one point in time.”

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