European Securities and Markets Authority (ESMA) has reported that ESG-labelled investment funds in the EU continued to charge lower fees than conventional products in 2024, although they underperformed non-ESG peers during the year.
In its eighth annual Costs and Performance report, ESMA found that overall ongoing costs for EU retail investment funds declined in 2024, largely driven by new funds entering the market with lower fee structures. Cost reductions among long-standing funds were more limited.
UCITS ongoing costs fell by 8% for retail equity funds and nearly 15% for retail bond funds, while reductions for existing funds were 3% and 9% respectively. At the same time, performance improved significantly. Equity and mixed funds recorded their second-best results since 2020, bond funds posted their highest returns in recent years, and real net returns were positive across all categories.
However, ESG UCITS underperformed non-ESG equivalents in 2024. Funds classified under the EU’s Sustainable Finance Disclosure Regulation (SFDR) Article 9 also delivered lower returns than Article 6 funds.
Verena Ross, ESMA Chair, said the data points to gradual cost pressure in EU markets and improving investor outcomes, but stressed that benefits remain uneven and product choice is critical.
The report also found that Alternative Investment Funds (AIFs) remain dominated by professional investors, with retail participation falling from 14% in 2022 to 9% in 2024, despite positive annual net returns across categories. Costs for structured retail products remained broadly stable, while interest rate-linked products increased their market share to 27%, up from 1% in 2021.
