{"id":1560,"date":"2024-04-24T13:00:00","date_gmt":"2024-04-24T13:00:00","guid":{"rendered":"https:\/\/www.tejwin.com\/en\/insights\/tquant-lab-esg-etf-eng\/"},"modified":"2024-04-24T13:00:00","modified_gmt":"2024-04-24T13:00:00","slug":"tquant-lab-esg-etf-eng","status":"publish","type":"insight","link":"https:\/\/www.tejwin.com\/en\/insights\/tquant-lab-esg-etf-eng\/","title":{"rendered":"Should ESG ETF Be a Buy? Backtest Performance of ESG ETF"},"content":{"rendered":"<figure class=\"wp-block-image aligncenter size-full caption-align-center\"><img loading=\"lazy\" decoding=\"async\" alt=\"ESG ETF\" class=\"wp-image-22654\" height=\"4352\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/margot-richard-NJJ7paSBO-c-unsplash.jpg\" style=\"aspect-ratio:3\/2;object-fit:cover\" width=\"3264\"\/><figcaption class=\"wp-element-caption\">Photo by <a class=\"ek-link\" href=\"https:\/\/unsplash.com\/@mrgt_rchd?utm_content=creditCopyText&amp;utm_medium=referral&amp;utm_source=unsplash\" rel=\"noopener\" target=\"_blank\">Margot RICHARD<\/a> on <a href=\"https:\/\/unsplash.com\/photos\/unknown-person-holding-clear-glass-ball-NJJ7paSBO-c?utm_content=creditCopyText&amp;utm_medium=referral&amp;utm_source=unsplash\" rel=\"noopener\" target=\"_blank\">Unsplash<\/a><\/figcaption><\/figure>\n<h2 class=\"wp-block-heading\">Highlight<\/h2>\n<ul class=\"wp-block-list\">\n<li>Article Difficulty: \u2605\u2606\u2606\u2606\u2606<\/li>\n<li>Explore the relationship between ESG ETFs and weighted returns.<\/li>\n<li>Write a buy-and-hold ESG ETF and backtest risk and performance using the TQuant Lab backtesting platform.<\/li>\n<\/ul>\n<h2 class=\"wp-block-heading\">Introduction<\/h2>\n<h3 class=\"wp-block-heading\">What is ESG\uff1f<\/h3>\n<p class=\"wp-block-paragraph\">ESG is a concept proposed by the United Nations Global Compact in 2004. ESG in Chinese refers to \u201cenvironmental\u201d, \u201csocial\u201d and \u201cgovernance.\u201d These three pillars are essential indicators for evaluating the sustainable operation of enterprises. The following explains the meaning of ESG\uff1a<\/p>\n<p class=\"wp-block-paragraph\"><mark class=\"has-inline-color has-vivid-green-cyan-color\" style=\"background-color:rgba(0, 0, 0, 0)\"><strong>E \u2013 Environmental\uff1a<\/strong><\/mark><br \/>It represents the need for enterprises to pay attention to the impact and responsibility of environmental sustainability issues during their operations and development processes, including reducing carbon emissions, climate change, energy conservation, pollution management, etc. It is used to measure whether enterprises have considered the environment\u2019s maintenance during development.<\/p>\n<p class=\"wp-block-paragraph\"><mark class=\"has-inline-color has-vivid-green-cyan-color\" style=\"background-color:rgba(0, 0, 0, 0)\"><strong>S \u2013 Social\uff1a<\/strong><\/mark><br \/>It means that enterprises must pay attention to relevant social issues in the process of operation and development and fulfill their responsibilities to society. This includes how companies manage employees, consumers, or employee rights, corporate working environment, support for charity, labor human rights, social participation, etc., to promote companies\u2019 establishment of a good workplace environment and implementation of corporate social responsibilities.<\/p>\n<p class=\"wp-block-paragraph\"><strong><mark class=\"has-inline-color has-vivid-green-cyan-color\" style=\"background-color:rgba(0, 0, 0, 0)\">G \u2013 Governance\uff1a<\/mark><\/strong><br \/>It refers to the transparency, responsibility, efficiency, and fairness of various matters in the company\u2019s management and operation process. It includes topics such as company senior management, executive compensation, shareholder rights, information transparency, risk management, board governance, supply chain management, etc. It is used to evaluate a company\u2019s managers and operations. Combining these three ESG concepts can determine how a company can contribute to sustainable development while making profits.<\/p>\n<h3 class=\"wp-block-heading\">Importance of ESG<\/h3>\n<p class=\"wp-block-paragraph\">ESG is an essential indicator for evaluating the sustainable development of a company and is also one of the critical issues that investors pay attention to. When the financial crisis broke out, <span class=\"ek-underline\" style=\"text-decoration: underline;\">companies with higher ESG scores were less affected because of their long-term investment in social assets, making ESG more critical.<\/span> Although business operations need to pay attention to financial data, if they take actions that harm the environment or infringe on consumer rights for the sake of revenue results, it will affect the company\u2019s reputation. Moreover, as the problem of climate change intensifies, environmental risks are an issue that the world must pay attention to. Therefore, both investors and social groups have begun to supervise the response measures of enterprises or governments to environmental risks.<\/p>\n<p class=\"wp-block-paragraph\">In other words, <span class=\"ek-underline\" style=\"text-decoration: underline;\">ESG risks have become one of the critical factors affecting corporate finance and reputation.<\/span> For example, environmental and social violations have caused the company to be fined or face legal risks such as lawsuits, or there have been disputes about ethical flaws in its operating methods, and the media have criticized it. Damage to brand reputation caused by reports. Therefore, there are five benefits for companies to implement ESG\uff1a<\/p>\n<ul class=\"wp-block-list\">\n<li>Reduce risk<\/li>\n<li>Increase long-term value<\/li>\n<li>Meet investor expectations<\/li>\n<li>Good reputation<\/li>\n<li>Sustainable development<\/li>\n<\/ul>\n<h3 class=\"wp-block-heading\">ESG ETF<\/h3>\n<p class=\"wp-block-paragraph\">This article will select the top 4 popular ESG ETFs in the market as investment targets\uff1a<\/p>\n<ol class=\"wp-block-list\">\n<li>The full name of <strong>00692<\/strong> is\u00a0\u201cFubon Taiwan Corporate Governance 100 Fund,\u201d and the tracking index is \u201cTaiwan Corporate Governance 100 Index.\u201d<\/li>\n<li>The full name of <strong>00850<\/strong> is \u201cYuanta Taiwan ESG Sustainable ETF Securities Investment Trust Fund,\u201d and the tracking index is the Taiwan Sustainability Index.<\/li>\n<li>The full name of <strong>00878<\/strong> is \u201cCathay Taiwan ESG Sustainable High Dividend ETF Fund,\u201d and the tracking index is \u201cMSCI Taiwan ESG Sustainable High Dividend Select 30 Index.\u201d MSCI refers to the abbreviation of Morgan Stanley Capital International, one of the three largest companies in the world and one of the important index companies.<\/li>\n<li>The full name of<strong> 00888 <\/strong>is \u201cSinoPac Taiwan ESG Sustainable Quality ETF Securities Investment Trust Fund,\u201d and the tracking index is the FTSE Taiwan ESG Quality Index, which is derived from the FTSE Global Equity Index.<\/li>\n<\/ol>\n<div class=\"wp-block-buttons is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-3e41869c wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button has-custom-width wp-block-button__width-100 has-custom-font-size\" style=\"font-size:22px\"><a class=\"wp-block-button__link has-background wp-element-button\" href=\"\/en\/databank-solution\/market-data\/\" style=\"border-radius:13px;background:linear-gradient(135deg,rgb(242,218,123) 0%,rgb(69,177,141) 53%,rgb(51,106,181) 100%)\"><strong>Learn More About the High-Quality ETF Database by TEJ!<br \/>Construct Trading Strategies With Market Data. <\/strong><\/a><\/div>\n<\/div>\n<div aria-hidden=\"true\" class=\"wp-block-spacer\" style=\"height:21px\"><\/div>\n<h2 class=\"wp-block-heading\">Editing Environment and Module Requirements<\/h2>\n<p class=\"wp-block-paragraph\">This article uses Windows 11 and VS code as the editor.<\/p>\n<h2 class=\"wp-block-heading\">Data Importation<\/h2>\n<pre class=\"wp-block-code\"><code>import os\nimport pandas as pd\n\ntej_key = 'your key'\napi_base = 'https:\/\/api.tej.com.tw'\n\nos.environ['TEJAPI_KEY'] = tej_key \nos.environ['TEJAPI_BASE'] = api_base\n\nstart = '2018-01-01'\nend = '2023-12-31'\nstock_list = ['00692', '00850', '00878', '00888', 'IR0001']\ncalendar_name = 'TEJ'\n\nos.environ['mdate'] = start + ' ' + end\nos.environ['ticker'] = ' '.join(stock_list)\n\n!zipline ingest -b tquant<\/code><\/pre>\n<h2 class=\"wp-block-heading\">Create backtest environment<\/h2>\n<h3 class=\"wp-block-heading\">Select ESG ETF Data <\/h3>\n<p class=\"wp-block-paragraph\">Next, we are going to build the backtest environment. First, we could collect multiple targets\u2019 quantitative indicators and price and volume data. In this case, we used it to obtain data on four ESG ETFs, which can avoid processing stocks that have yet to be listed. <\/p>\n<figure class=\"wp-block-image aligncenter size-full caption-align-center\"><img loading=\"lazy\" decoding=\"async\" alt=\"ESG ETF\" class=\"wp-image-22791\" height=\"471\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/E5BDB1E5838F-1.png\" width=\"521\"\/><figcaption class=\"wp-element-caption\">Displaying data results.<\/figcaption><\/figure>\n<h3 class=\"wp-block-heading\">Build daily trading environment<\/h3>\n<p class=\"wp-block-paragraph\">This section is to define the daily trading environment before the start of trading. In this example, we set the following conditions\uff1a<\/p>\n<ul class=\"wp-block-list\">\n<li>Slippage cost<\/li>\n<li>Commission fees<\/li>\n<li><strong>Returns Index (<em>IR0001<\/em>)<\/strong> as the benchmark index<\/li>\n<li>Import the above calculated data result into the transaction process<\/li>\n<\/ul>\n<h3 class=\"wp-block-heading\">Build the Trading Strategy<\/h3>\n<p class=\"wp-block-paragraph\">The function below is essential for building a trading strategy. It will be called every day after the backtest starts. <span class=\"ek-underline\" style=\"text-decoration: underline;\">The main task of this article is to set an order equal to 25% of the current value of the investment portfolio.<\/span><\/p>\n<pre class=\"wp-block-code\"><code>def handle_data(context, data):\n    out_dir = pipeline_output('mystrats')\n    \n    for asset in out_dir.index:\n        stock_position = context.portfolio.positions[asset].amount\n        if stock_position == 0:\n            order_percent(asset, 0.25)<\/code><\/pre>\n<h3 class=\"wp-block-heading\">Execute the Trading Strategy<\/h3>\n<p class=\"wp-block-paragraph\">Next, we can start carrying out our trading strategy. Based on the set above, we execute the buy-and-hold the ESG ETFs. Set the trading period from <strong>start_date (2018-01-01) to end_date (2023-12-31)<\/strong>and used the data we collected earlier. The initial capital for the trading strategy is $1,000,000. The output results are a detailed list of daily performance and transactions.<\/p>\n<figure class=\"wp-block-image size-full caption-align-center\"><img loading=\"lazy\" decoding=\"async\" alt=\"ESG ETF\" class=\"wp-image-22793\" height=\"765\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/E5BDB1E5838F-2.png\" width=\"1365\"\/><figcaption class=\"wp-element-caption\">Trading Details<\/figcaption><\/figure>\n<h2 class=\"wp-block-heading\">Performance Evaluation<\/h2>\n<p class=\"wp-block-paragraph\">To further understand the performance of this strategy, we compared the cumulative returns of this strategy with the cumulative return of the benchmark index and visualized the results as follows:<\/p>\n<figure class=\"wp-block-image size-full caption-align-center\"><img loading=\"lazy\" decoding=\"async\" alt=\"ESG ETF\" class=\"wp-image-22795\" height=\"750\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/ESG-1.jpg\" width=\"1392\"\/><figcaption class=\"wp-element-caption\">Backtesting Performance Compared to Benchmark<\/figcaption><\/figure>\n<p class=\"wp-block-paragraph\">From the chart above, we can see that the market has a return of 2 times in these 5 years, while the return of buying and holding ESG ETFs is slightly lower, but<span class=\"ek-underline\" style=\"text-decoration: underline;\"> it still has a cumulative return of more than 1.6 times.<\/span> In addition, we also see that the fluctuations of the ESG ETF investment group are almost consistent with the broader market, but the annualized volatility and maximum drawdown are 11.57% and -27.08% respectively. This fluctuation range is relatively small compared to the broader market. Moreover, a Beta value &lt; 1 means that this investment portfolio is not sensitive to changes in the overall market. Various indicators show that <strong><mark class=\"has-inline-color has-vivid-cyan-blue-color\" style=\"background-color:rgba(0, 0, 0, 0)\">ESG ETFs are making stable profits at lower risks<\/mark><\/strong>, reflecting the three major aspects of the ESG concept\uff1a<\/p>\n<ul class=\"wp-block-list\">\n<li><strong>Long-term value mindset<\/strong>\uff1aESG companies focus on long-term value creation rather than short-term profit pursuits.<\/li>\n<li><strong>Risk management<\/strong>\uff1aESG companies usually pay more attention to risk management, including climate change risks, social responsibility risks, governance risks, etc. <span class=\"ek-underline\" style=\"text-decoration: underline;\">These risk management measures can reduce the unknown risks the company faces and reduce the stock\u2019s volatility<\/span>.<\/li>\n<li><strong>Stable profit model<\/strong>\uff1aMany ESG companies adopt sustainable business models, such as reducing environmental impact, establishing a robust supply chain, etc. These practices can lead to stable profits and cash flow.<\/li>\n<\/ul>\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n<p class=\"wp-block-paragraph\">In this implementation, we selected four ESG ETFs as investment targets to conduct a backtest performance analysis of buy-and-hold targets. <strong><mark class=\"has-inline-color has-vivid-cyan-blue-color\" style=\"background-color:rgba(0, 0, 0, 0)\">The backtest results of this four-tier ESG ETF performed well in cumulative and annualized returns, reaching 67.95% and 9.34%, respectively<\/mark><\/strong>. The annualized volatility and maximum drawdown were 11.57% and -27.08%, respectively. This shows that<span class=\"ek-underline\" style=\"text-decoration: underline;\"> ESG ETFs have achieved solid returns and controlled risks<\/span>. The beta value shows that the performance relative to the broader market is relatively stable and less affected by market fluctuations. However, it can be seen from the Sharpe Ratio and Alpha that ESG ETFs have less excess returns, reflecting that the ESG corporate industry attaches great importance to the stability of various company indicators.<\/p>\n<p class=\"wp-block-paragraph\">Overall, these factors make ESG ETFs stable in performance and less volatile. <strong><mark class=\"has-inline-color has-vivid-cyan-blue-color\" style=\"background-color:rgba(0, 0, 0, 0)\">Investing in ESG ETFs is better for obtaining long-term stable growth than short-term swing returns<\/mark><\/strong>.<\/p>\n<div style=\"border: 1px black; border-style: solid none; text-align: center; border-color: #296580; padding: 24px; margin-top: 24px; margin-bottom: 24px;\">\n<p style=\"margin: 0px; font-size: 24px; font-weight: bold; line-height: 1.5;\">Learn More About the High-Quality ETF Database by TEJ!<br \/>Construct Trading Strategies With Market Data.<\/p>\n<div style=\"margin-top: 32px;\"><a href=\"\/en\/databank-solution\/market-data\/\" rel=\"noopener\" style=\"border: none; border-radius: 4px; background-color: #296580; color: white; font-size: 20px; width: fit-content; text-decoration: none; padding: 12px 30px 12px 30px;\" target=\"_blank\">TEJ Market Data<\/a><\/div>\n<\/div>\n<h2 class=\"wp-block-heading\">Extended Reading<\/h2>\n<ul class=\"wp-block-list\">\n<li><a class=\"ek-link\" href=\"\/en\/insight\/measuring-stock\/\">Is TQuant Lab Measuring Stock a Buy?<\/a><\/li>\n<li><a class=\"ek-link\" href=\"\/en\/insight\/rsi-moving-average\/\">TQuant Lab RSI Moving Average Strategy<\/a><\/li>\n<\/ul>\n<h2 class=\"wp-block-heading\">About<\/h2>\n<ul class=\"wp-block-list\">\n<li><a class=\"ek-link\" href=\"\/en\/\"><a class=\"ek-link\" href=\"\/en\/\">TEJ Website<\/a><\/a><\/li>\n<li><a aria-label=\" (opens in a new tab)\" class=\"ek-link\" href=\"https:\/\/www.linkedin.com\/company\/taiwan-economic-journal-co-ltd-\/\" rel=\"noreferrer noopener\" target=\"_blank\"><a class=\"ek-link\" href=\"https:\/\/www.linkedin.com\/company\/taiwan-economic-journal-co-ltd-\/\" rel=\"noreferrer noopener\" target=\"_blank\">LinkedIn<\/a><\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>ESG is an important indicator for evaluating a company\u2019s sustainable development and is also one of the important issues that investors pay attention to. Environmental risks are an issue that the world must pay attention to. Both investors and social groups have begun to supervise companies\u2019 or governments\u2019 response measures to environmental risks. This article will buy-and-hold ESG ETF and backtest risk and performance.<\/p>\n","protected":false},"featured_media":1556,"template":"","tags":[63,65],"insight_category":[87],"class_list":["post-1560","insight","type-insight","status-publish","has-post-thumbnail","hentry","tag-etf","tag-python","insight_category-event-alternative-signals"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight\/1560","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight"}],"about":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/types\/insight"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/media\/1556"}],"wp:attachment":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/media?parent=1560"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/tags?post=1560"},{"taxonomy":"insight_category","embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight_category?post=1560"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}