Sustainable or risky? Performance and volatility asymmetries between ESG ETFs: evidence from the European financial markets

This chapter investigates the performance and volatility asymmetries between high- and low-scored Environmental, Social, and Governance (ESG) Exchange-Traded Funds (ETFs) in Europe. Using a sample of 38 ETFs (19 with the highest and 19 with the lowest ESG scores, based on Refinitiv data) over the period 2022–2025, the study compares their return dynamics, volatility persistence, and asymmetry in responses to market shocks. Applying ARFIMA, GARCH (1,1), and EGARCH models, we assess whether ESG ratings influence long-memory behavior, volatility persistence, and leverage effects. Results show no statistically significant difference in volatility persistence or long-memory characteristics between high- and low-ESG ETFs. While high-ESG ETFs exhibit slightly more negative skewness and higher kurtosis, these differences are not significant. Both groups show strong volatility clustering and positive leverage effects, indicating that ESG attributes do not inherently alter volatility behavior. Our findings challenge the belief that ESG investing provides superior downside protection, suggesting that sustainability considerations may not translate into reduced financial risk.