The rapid growth of environmental, social, and governance (ESG) investing has intensified the debate regarding whether ESG-oriented investment strategies exhibit performance patterns that differ from those of conventional investments, particularly during periods of market disruption. This study examines the risk-adjusted performance of ESG-oriented and non-ESG exchange-traded funds (ETFs) across market regimes surrounding the COVID-19 shock. The analysis classifies 28 passively managed ETFs into four sustainability-based categories and evaluates their performance using factor-based asset pricing models derived from the Fama–French framework. Additional analyses assess benchmark-relative performance using the S&P 500 and MSCI World indices and consider alternative ETF classifications based on investment mandates. The study estimates regime-specific regressions for the pre-COVID, COVID, and post-COVID periods. The results indicate that performance patterns vary across market regimes and ETF categories. Non-ESG ETFs tend to underperform on a risk-adjusted basis during the pre-COVID period, although this effect disappears thereafter. ESG-oriented ETFs generally exhibit limited evidence of abnormal performance, while factor exposures vary across regimes, reflecting changes in sector composition and macro-financial conditions. The findings suggest that, in addition to ESG orientation, market regimes and sectoral exposures play an important role in explaining differences in ETF performance.
Villarreal-Samaniego et al. (Fri,) studied this question.