The Performance of ESG Exchange-Traded Funds Compared to Conventional Exchange-Traded Funds : Evidence from European and U.S. Markets
Pysyvä osoite
Kuvaus
Opinnäytetyö kokotekstinä PDF-muodossa.
This thesis examines the financial performance of environmental, social, and governance (ESG) exchange-traded funds (ETFs) in comparison with conventional ETFs in the equity markets of Europe and the United States. The growing popularity of responsible investing, along with the increasing interest in ESG factors, has raised questions regarding whether ESG investments can generate competitive financial returns relative to traditional investment strategies. The objective of this thesis is to determine whether ESG ETFs differ from conventional ETFs in terms of returns, risk-adjusted performance, and factor exposures.
The empirical analysis is based on daily return data obtained from the London Stock Exchange Group (LSEG) Datastream database. The sample consists of nine ETF pairs, in which each ESG ETF is matched with a conventional ETF that tracks a highly similar benchmark index. The selected ETF pairs represent major equity markets in Europe and the United States, including indices such as the S&P 500, Nasdaq 100, DAX, MSCI Europe, and Euro Stoxx 50. The analysis employs the Fama–French five-factor (FF5) model as well as the Sharpe ratio to evaluate the performance and risk–return characteristics of the ETF funds.
The empirical results indicate that ESG ETFs and conventional ETFs exhibit highly similar factor profiles and overall performance characteristics. In several ETF pairs, ESG ETFs achieve slightly higher Sharpe ratios compared to their conventional counterparts, suggesting somewhat superior risk-adjusted performance. However, the results do not provide consistent evidence that ESG ETFs systematically outperform conventional ETFs in terms of returns. Furthermore, the regression analysis indicates that ESG screening does not significantly alter the core investment characteristics of broadly diversified market ETFs.
The findings suggest that investors can incorporate ESG considerations into their investment strategies without significantly compromising financial performance. At the same time, the results highlight that any potential financial advantages of ESG investing are dependent on market conditions, index composition, and the selected time period.