Hidden Gem or Fool's Gold: Can Passive ESG ETFs Outperform the Benchmarks?

41 Pages Posted: 27 Dec 2021 Last revised: 22 Mar 2022

See all articles by Ariadna Dumitrescu

Ariadna Dumitrescu

ESADE Business School

Jesse Jarvinen

affiliation not provided to SSRN

Mohammed Zakriya

IÉSEG School of Management; CNRS; Lille Economie Management (LEM) UMR 9221; University of Lille

Date Written: August 1, 2021

Abstract

Using a unique and extensive dataset of 121 socially responsible investing (SRI) equity exchange-traded funds (ETFs) from January 2010 to December 2020, this study examines how passive SRI ETFs perform compared with their non-SRI benchmarks composed of S&P500 ETFs. Over the full sample period, our results show that an equally weighted SRI ETF portfolio underperforms its benchmark portfolio. Notably, we do not find significant differences in the two portfolios' performance in the second half of our sample period. However, in the last two years the SRI ETF portfolio significantly outperforms the benchmark. For the SRI investment strategies, we show that positive screening (or inclusion) rather than negative screening (or exclusion) can beat the benchmark portfolio. In particular, environmental inclusion screen provides significantly higher abnormal returns. Finally, we find that SRI ETFs' performance can be explained by increasing industry competition and declining market concentration.

Keywords: ESG, ETFs, SRI, socially responsible investments, sustainability

JEL Classification: G32, G34, L21, M14, Q56

Suggested Citation

Dumitrescu, Ariadna and Jarvinen, Jesse and Zakriya, Mohammed, Hidden Gem or Fool's Gold: Can Passive ESG ETFs Outperform the Benchmarks? (August 1, 2021). Available at SSRN: https://ssrn.com/abstract=3992745 or http://dx.doi.org/10.2139/ssrn.3992745

Ariadna Dumitrescu

ESADE Business School ( email )

Av. Pedralbes 60-62
Barcelona, 08034
Spain

Jesse Jarvinen

affiliation not provided to SSRN

Mohammed Zakriya (Contact Author)

IÉSEG School of Management ( email )

3 rue de la Digue
Lille, 59000
France

CNRS ( email )

Lille
France

Lille Economie Management (LEM) UMR 9221 ( email )

Lille
France

University of Lille ( email )

Cité Scientifique
Villeneuve-d'Ascq, 59650
France

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