The Puzzle of ESG Fund Fees

Aaron J. Black and Julian F Kölbel
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Aaron J. Black: University of St. Gallen; Swiss Finance Institute
Julian F Kölbel: University of St. Gallen - School of Finance; MIT Sloan; Swiss Finance Institute

No 24-109, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper documents that ESG funds in the U.S. charge net expense ratios that are 9.5 to 12.7 basis points lower than those of non-ESG funds. This contrasts with the existing literature on investors' willingness to pay for ESG. The fee difference is driven by the use of waivers, which offset the higher gross expense ratios of ESG funds. We explore three explanations consistent with these findings: (1) heightened competition among ESG funds exerts downward pressure on fees, (2) ESG funds exhibit lower expected returns, and (3) fund families strategically use ESG funds with low fees to cross-sell higher-fee funds.

Keywords: ESG; Mutual Funds; Competition (search for similar items in EconPapers)
Pages: 63 pages
Date: 2024-12
New Economics Papers: this item is included in nep-env and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp24109

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