ESG investors are getting ‘something for nothing’

Outperforming non-ESG peers while having lower fees, according to Refinitiv Lipper research seen exclusively by ESG Clarity

Research carried out by Refinitiv Lipper, and seen exclusively by ESG Clarity, has found ESG funds in the UK market have outperformed ‘conventional’ funds, while still being able to offer lower fees.

The data and research firm is set to launch a quarterly review of the UK ESG fund market looking at assets, flows, performance and charges of mutual funds and ETFs within the responsible investing space.

Looking at data from Q1 to Q3 for 2021, ESG fund performance over three and five years significantly outfperform their non-ESG peers at the same time as being up to 21% cheaper to hold in portfolios.

ESG Top-Selling Classification Performance versus Conventional Equivalents (Q1-Q3 2021 (£bn))               

For example, funds sitting within the Equity Global ESG sector returned 76.5% over five years to the end of Q3, while vehicles in the Equity Global non-ESG peer group returned the smaller amount of 65.9%, according to Refinitiv Lipper.

See also: – ESG and performance: Time for a shift in focus and mindset

Funds investing in UK equities and mixed asset demonstrated similar returns.

ESG sector vs non-ESG sector performance

1 year (%)3 year (%)5 year (%)
Equity Global ESG23.2742.4576.47
Equity Global non-ESG23.0132.7165.86
Equity UK ESG29.0819.4847.2
Equity UK non-ESG31.1312.3232.82
Mixed Asset GBP Balanced ESG13.7622.0634.93
Mixed Asset GBP Balanced non-ESG13.1516.1627.64
Source: Refinitiv Lipper

Looking at fees, the ESG funds however had lower charges than their ‘conventional’ peers on an asset class basis.

Total expense ratio, ESG v conventional by asset class (%) 

As of Q3 2021, the biggest difference between ESG and non-ESG charges per asset class is with mixed assets, where ESG funds are 21% cheaper than there non-ESG peers, the research found. Meanwhile, ESG equity funds are 16% cheaper, and alternatives and bond ESG funds are each about 7% cheaper than their non-ESG equivalents.

See also: – Pressure to bring down fund fees

Dewi John, UK & Ireland head of research for Refinitiv Lipper, said: “One thing that’s apparent from the data is that while ESG funds are on the whole cheaper than their non ESG peers, they have clearly outperformed ‘conventional’ funds over three and five years.

“This may be simply because of the value bias in markets over the period, and we’d need to see a more sustained value rally to determine whether this is the case, or whether investors really are benefitting from an ‘ESG premium’. However, between the lower charges and the outperformance, at a very general level, it does look like ESG investors are getting something for nothing.”

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Natalie Kenway

Natalie is global head of ESG insight for ESG Clarity and has been an investment journalist for 16 years. She won Editor of the Year at the Aviva Investors Sustainability Media Awards 2021, and was Winner...