Comparison of Risk-Adjusted Relative Returns of MSCI ESG Thematic Indexes on the European Market

Abstract

Purpose – The primary objective of this article is to compare annualized performance and risk adjusted relative returns of thematic ESG indices (such as MSCI Screened/Leaders/Universal Index, etc.) for European market covering the 5-year period of 2019–2023. Research method – We employed the Sharpe ratio to compare risk adjusted relative returns of 5 selected ESG thematic indices across the European market. Results – Our study revealed that MSCI SRI index, one of the most universal and diversified index that tracks “best-in-class” companies from each sector, yields higher risk adjusted returns than its peers. Originality / value / implications / recommendations – The results of the paper fill the existent gap in the literature and complemented the ongoing discussions on the topic of cross-index comparison in the domain of ESG-investing in the European market. It provides valuable insights regarding risk-adjusted returns of large set of ESG thematic indexes for both academic community and professional investors.