Analysis on the Correlation of ESG Exposure Ratings on ETF Performance

Author

Brendan C. Kelly, University of New Hampshire, DurhamFollow

Date of Award

Spring 2024

Project Type

Senior Honors Thesis

College or School

PAUL

Department

Finance

Program or Major

Interdisciplinary Honors Program

Degree Name

Bachelor of Science

First Advisor

Richard Kilbride

Abstract

Sustainable investing is evolving as our understanding of company impacts on the environment become known. With the emergence of “ESG” in financial risk assessment, there is a greater emphasis on companies to disclose in the pillars of environment, social, and governance activities to be assessed by investors and ratings providers. This paper seeks to explore whether ESG ratings of index funds correlate to financial performance. The findings of this study show that environmental and governance scores cannot be generalized as consistent predictors of financial performance. However, a multiple linear regression analysis revealed that the Social score (S_Score) and the category of the fund are statistically significant in predicting fund returns. More specifically, a higher social score and U.S. based funds both positively correlate to fund performance. Conversely, higher expense ratios for ETFs had a negative impact on fund performance. These results suggest that performance in the social dimension of ESG is statistically significant in assessing fund performance, while higher management fees may undermine fund performance.

Recommended Citation

Kelly, Brendan C., "Analysis on the Correlation of ESG Exposure Ratings on ETF Performance" (2024). Honors Theses and Capstones. 825.
https://scholars.unh.edu/honors/825