Risk-Adjusted Performance of ESG ETFs: Benchmark, Geographic, and Market Exposure Analysis

This paper examines whether the risk-adjusted performance of Environmental, Social, and Governance (ESG)-focused Exchange Traded Funds (ETFs) reflects distinct investment behavior or is primarily influenced by benchmark exposure, geography, and sector composition. Six ETFs are analyzed, including two ESG-based ETFs (ESGU and ESGD), two broad market benchmarks (SPY and VEA), a growth/technology ETF (QQQ), and a non-ESG ETF (VICEX). From accessible monthly closing price data for each ETF from December 2016 to May 2026, mean return, volatility, and Sharpe ratio values were calculated for each ETF over the whole period and across multiple distinct market sub-periods. Examining multiple market periods allows for comparison across varying economic and market conditions. This paper finds that ESG-focused ETFs do not clearly deliver consistently distinct or superior risk-adjusted performance. Instead, their returns appear largely explained by benchmark exposure, geography, and sector composition. Investors choosing ESG-based ETFs should not expect distinct, superior performance solely from ESG screening, as performance is largely based on other factors affecting the fund’s actual holdings.

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Publication Details

Journal
Scholarly review .
Published
2026-09-04
DOI
https://doi.org/10.70121/001c.169612
Primary Topic
Sustainable Finance and Green Bonds
Type
article
Field-Weighted Citation Impact
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article

Risk-Adjusted Performance of ESG ETFs: Benchmark, Geographic, and Market Exposure Analysis

Victor Chen
Scholarly review .
Sustainable Finance and Green Bonds
article

Risk-Adjusted Performance of ESG ETFs: Benchmark, Geographic, and Market Exposure Analysis

Victor Chen
article en

Abstract

This paper examines whether the risk-adjusted performance of Environmental, Social, and Governance (ESG)-focused Exchange Traded Funds (ETFs) reflects distinct investment behavior or is primarily influenced by benchmark exposure, geography, and sector composition. Six ETFs are analyzed, including two ESG-based ETFs (ESGU and ESGD), two broad market benchmarks (SPY and VEA), a growth/technology ETF (QQQ), and a non-ESG ETF (VICEX). From accessible monthly closing price data for each ETF from December 2016 to May 2026, mean return, volatility, and Sharpe ratio values were calculated for each ETF over the whole period and across multiple distinct market sub-periods. Examining multiple market periods allows for comparison across varying economic and market conditions. This paper finds that ESG-focused ETFs do not clearly deliver consistently distinct or superior risk-adjusted performance. Instead, their returns appear largely explained by benchmark exposure, geography, and sector composition. Investors choosing ESG-based ETFs should not expect distinct, superior performance solely from ESG screening, as performance is largely based on other factors affecting the fund’s actual holdings.

Scholarly review .Vol. Fall 2026(17)
South Plains College (US)
Openalex Percentile: Top 7%
Sustainable Finance and Green Bonds
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