Sustainability in calm and rough waters: an empirical investigation of european ESG ETFs

Since the Paris Agreement in 2015 and the European Union’s commitment to leading the transition toward a sustainable economy, the European market for passively managed ESG products has experienced remarkable growth. This study examines the financial performance of 34 European ESG ETFs linked to the MSCI Europe Index from 2015 to 2024, taking into account key events like the Paris Agreement, COVID-19, and the Russia-Ukraine conflict. To assess ESG ETF performance, we apply the Sharpe (Sharpe, Management Science 9:277–293, 1963) index model and the Fama French (Fama and French, Journal of Financial Economics 116:1–22, 2015) five-factor model. Furthermore, we analyze how geopolitical crises, health crises, and the choice of ESG strategy are related to ETF performance. The results indicate that the ESG strategy itself shows only a limited relationship with alpha values, but is related with the sensitivity to market fluctuations. Moreover, we find that ESG ETFs tend to underperform their non-sustainable benchmarks during periods of geopolitical turmoil, accompanied by increased risk exposure, as observed during the Russia–Ukraine conflict.