Measuring Emission Profiles of Self-Proclaimed Sustainable Exchange-Traded Funds
Conference
64th ISI World Statistics Congress - Ottawa, Canada
Format: IPS Abstract
Session: IPS 205 - Sustainable finance statistics
Wednesday 19 July 2 p.m. - 3:40 p.m. (Canada/Eastern)
Abstract
The number of exchange-traded funds (ETFs) proclaimed to be sustainable has proliferated in recent years and attracted substantial investor interest. Until new regulations enforce standardized and comparable classification criteria, it remains difficult to understand how self-proclaimed sustainable ETFs differ regarding their sustainability strategy and metrics. We investigate the construction of self-proclaimed sustainable ETFs and assess their environmental footprint through scope 1 greenhouse gas (GHG) emission intensities. We combine public information about fund assets from fund issuers’ websites and ETF databases, fund-level textual information extracted from fund disclosure documents, and proprietary firm-level emission data. Our analyses rely on 178 self-proclaimed sustainable ETFs, covering the largest global issuers and 38 reference ETFs, i.e., the non-sustainable conventional ETFs that issuers state as the benchmark reference. We find that most self-proclaimed sustainable ETFs have lower average emission intensities than their respective reference ETFs. Part of this difference is driven by divesting from emission-intensive sectors. We find little evidence of best-in-class selection effects, i.e., of funds selecting firms that spearhead emission reductions in their sector. Our results suggest that investors may reduce their carbon footprint by shifting from reference ETFs to self-proclaimed sustainable ETFs. However, investors looking to cover a broad market while rewarding the lowest emitters within a sector cannot generally do so by investing in self-proclaimed sustainable ETFs.