What question did this study set out to answer?

This analysis aims to determine how ESG integration affects the financial performance of ETFs, focusing on risk-adjusted returns.

May 10, 2026

The Impact of Sustainable Investing on ETF Performance: A Risk-Adjusted Analysis

Key Points

This analysis aims to determine how ESG integration affects the financial performance of ETFs, focusing on risk-adjusted returns.
Analyzed a dataset of 560 ETFs
Applied Fama–French three-factor, Carhart’s four-factor, and Fama–French five-factor models to assess performance
Evaluated how ESG scores influence risk-adjusted returns across different ETF strategies.
Incorporating ESG criteria enhances risk-adjusted returns
Higher ESG-rated portfolios are generally more profitable but follow conservative investment approaches
Increased returns are associated with higher risk due to conservative strategies.

Abstract

This study examines the impact of ESG integration on the financial performance of exchange-traded funds (ETFs), with a focus on risk-adjusted returns. Analyzing a dataset of 560 ETFs, we apply the Fama–French three-factor, Carhart’s four-factor, and Fama–French five-factor models to assess how ESG scores influence performance. The results indicate that incorporating ESG criteria enhances risk-adjusted returns, though the extent of this impact varies by ETF strategy. High ESG-rated portfolios tend to be more profitable, but they also follow conservative investment approaches, leading to increased returns but also higher risk.

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Cite This Study

Keffala et al. (Fri,) studied this question.

synapsesocial.com/papers/6a002087c8f74e3340f9b59e https://doi.org/https://doi.org/10.3905/jbis.2026.006

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