ESG characteristics and ETF returns

Ilias Filippou, Ruiqi Hu and Taizhi Wu

Chapter 12 in Handbook of ESG Investing, 2026, pp 295-314 from Edward Elgar Publishing

Abstract: This chapter investigates the cross-sectional predictive power of ESG (Environmental, Social, and Governance) variables for ETF returns using a comprehensive Refinitiv dataset spanning 2002 to 2023. Our findings demonstrate that Environmental and Social factors serve as strong and consistent predictors of ETF performance whereas Governance factors show more varied and context-dependent effects. Notably, aggregating ESG metrics into composite scores can obscure important predictive information. In contrast, analyzing individual ESG variables—particularly those related to employee satisfaction and renewable energy use—reveals robust and persistent cross-sectional return predictability. These results highlight the strategic value of incorporating granular ESG data into investment decisions, enabling investors to align financial outcomes with sustainability goals and better navigate the evolving landscape of sustainable finance.

Keywords: Environmental; Social; Governance; ESG; ETF returns (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035322770
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