N°24-109: The Puzzle of ESG Fund Fees

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.