Style Analysis of ESG ETFs: Does the “E” Dominate the Returns?

This article employs returns-based style analysis (RBSA) on sustainable equity ETFs to identify the impact of environmental, social, and governance (ESG) factors on their investment style. To enhance the traditional RBSA approach, we integrate a gradient boosting regressor model, effectively addressing challenges such as multicollinearity and the inability to calculate statistical significance in factor weights. Our empirical findings show that investment managers place the greatest emphasis on environmental priorities, as the environmental factor has the largest impact on ESG ETF returns. In contrast, the governance factor has a considerably smaller influence, while the social factor’s impact varies significantly across the ETFs under review. Bootstrapped confidence intervals are used to confirm the stability and significance of each factor, ensuring robust results.