Do ESG funds have to sacrifice returns to be sustainable?
Not necessarily, and the evidence is mixed. Some studies find ESG funds perform in line with conventional funds over long periods, while others find modest drag, often driven by higher fees and reduced diversification from excluding certain sectors. When ESG funds avoid an industry that happens to boom, like energy during an oil spike, they can lag; when that industry slumps, they can outperform. Morningstar research generally finds no consistent long-term performance penalty for broad ESG index funds, though results vary by year and by how aggressive the screens are. The bigger, more predictable cost is the expense ratio, which tends to run higher than plain index funds. If you invest in ESG for values, do it with eyes open about fees and the concentration that screening can create.
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