ESG ETFs and the COVID-19 stock market crash of 2020: Did clean funds fare better?

This study adds to the literature on sustainable investment performance by assessing the riskadjusted returns of ESG ETFs before and during the COVID-19 market crash. Employing five factor models and post-expense returns before and after the market crash caused by the pandemic, it is determined that during the pre-COVID crash period, lower-rated sustainable ETFs tend to outperform the market and higher-rated ESG ETFs. During the crash period, the models' alphas are found to be negative and insignificant. Overall, higher sustainability ratings of ESG ETFs did not protect the ETFs ETFs from losses during the downturn, but they did not perform worse than the market.

Automated summary

This study examines the risk-adjusted returns of ESG ETFs before and during the COVID-19 market crash, finding that lower-rated sustainable ETFs tend to outperform higher-rated ESG ETFs in the pre-crash period. During the market crash, the alphas of the models are negative and insignificant. Overall, higher sustainability ratings do not protect ESG ETFs from losses during the downturn, but they do not perform worse than the market.