The price war has come to socially conscious investing.

BlackRock Inc., Vanguard Group and Deutsche Bank AG’s DWS Group have slashed the fee for exchange-traded funds that track companies performing well on environmental, social and governance criteria. ESG funds created by this trio and other issuers over the last year charge an average $2 for every $1,000 invested, half the median fee of these funds in the U.S., according to data compiled by Bloomberg.

These mega money managers have a simple goal: assets. Sustainable funds -- historically more expensive than their peers -- have struggled to compete with traditional offerings, managing just $9 billion of the almost $4 trillion in U.S. ETFs. But as the bulk of investors seek funds charging $2 or less and fees fall toward zero, issuers are rebranding ESG strategies as cheap, broad funds.

It seems to be working. ESG ETFs have already attracted $1.3 billion in new assets so far this year, more than half what the funds took in during 2018.

“If you lower fees and position ESG as a core solution, it’s going to attract assets,” said Todd Kowalski, director of business development for indexes at Morningstar. That creates a virtuous cycle: “Any time you get to scale, fees are naturally going to decrease,” he said.

Fee Fears

Lower fees are increasingly a matter of survival for ESG funds. Gone are the days when asset managers could justify higher costs by pointing to the larger research demands of socially responsible funds and uncertainty about asset growth. Funds that fail to lure inflows are starting to close, with two that charged $5 and $7.50 respectively slated to shutter.

Issuers have taken note. Vanguard fired the first shot, making its ESG U.S. Stock ETF the lowest-cost ESG ETF focused on equities in the U.S. when it started trading in September. It charges just $1.20 for every $1,000 invested, helping assets grow 60 percent to $273 million this month. Managers have since lowered costs even further.

DWS Group debuted a fund charging just $1 in New York last week. Now the cheapest for ESG stocks, the Xtrackers MSCI USA ESG Leaders Equity ETF, or USSG, is already the third-largest ESG fund with $865 million after an investment from Ilmarinen, a Finnish pension insurance company that covers more than 1.1 million people. BlackRock matched that price this week with an ETF listed in London.

BlackRock -- the world’s largest ETF issuer -- has absorbed about $850 million globally into its ESG ETFs this year, compared to about $3 billion for all of 2018, according to data from the money manager.

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