Exploring the climate resilience of ESG and conventional ETFs: Evidence from the European region

Given that growing inflows into ESG-labelled funds have increased significantly in recent years, as well as the ongoing evolving EU regulation on these, the (climate) resilience in ESG-labelled ETFs compared to their conventional peers is of considerable interest to academics, practitioners, and regulators. We explore if the equity ETFs in the European market are affected by climate change, putting emphasis on the equity ESG-labelled ETFs. After estimating the economic losses from extreme climate events by using the climate-related expected shortfall, we identify no significant resilience of the equity ESG-labelled ETFs compared to their conventional counterparties. We conclude that the current green labels under Articles 8 and 9 of the Sustainable Finance Disclosure Regulation (SFDR) have provided little reliability, and that there is a need for considering the geographical allocation in regulatory standards on the climate criteria of ESG-label funds to enhance potential future climate-induced volatility on these ETFs, as well as to offer important guidance for policy makers and finance professionals.